Swipe-now-pay-later attitude could land credit card holders in a soup if they don't understand the charges levied by card issuers
Credit crad gives you the ease to shop anywhere and everywhere with minimal hassle. It helps you buy big and lets you pay later, with a one-month grace period. But not understanding the terms and conditions in a credit card — like the interest and other charges levied by card companies — could leave you gasping under a mountain of debt. Often, a cardholder is struck by the realisation only when the monthly credit card statement reflects the hefty charges. For every card holder, it is imperative to study the 'Most Important Terms and Conditions' (MITC) listed on the card issuers' websites carefully. Here are some key clauses you need to be aware of, in order to avoid rude shocks later.
Cash Withdrawal
While your credit card can be used to withdraw cash from the automated teller machines, or ATMs, if required, it is best to save this option for emergencies. This is because cash withdrawal typically attracts an upfront charge — of close to 2.5% of the amount withdrawn. Moreover, unlike cards swiped at point-of-sale (POS) terminals where the amount becomes due after the expiry of the credit or grace period allowed to the card holder, in this case, the payment is due from the date of withdrawal. The rate of interest (termed finance charges in credit card parlance) to be paid on the amount could be in the range of 39-45% per annum.
Some banks also levy further charges if the withdrawal is made via teller counters at their branches.
Overlimit Charges
If you fail to keep track of your credit limit and end up overdrawing, you would be liable to pay the relevant charges. Typically, it is 2.5% of the overdrawn amount, subject to a minimum of Rs 500. Also, you would do well to remember that your credit limit is inclusive of any charges or late payment penalties payable by you.
Outstation Cheque Charges
All banks have a cheque collection policy that also covers terms related to outstation cheques. If you choose this mode to make your payment, you may be charged close to 1% of the cheque value or 50 for every instrument. Some banks, however, do waive these charges. You need go through your issuer's MITC to understand the applicable charge structure.
EMI Processing Charges
Several times, at the discretion of the credit card companies, cardholders with outstanding dues are allowed to convert the lump-sum repayment due into installment-based payments. The card issuer may promise to charge the existing rate of interest, but you need to watch out for the processing charges that could be built in, pushing up the entire amount payable.
Right Of Lien
If you have availed of a credit card from the bank where you maintain an account, the funds lying in the latter could be used towards repayment of your card dues. This could be applicable to the add-on credit card holder as well. Several card issuers' terms and conditions stipulate that in the event of nonpayment of dues by the card holder, they reserve the right to set-off the amount against any account with credit balance maintained by the individual.
