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What is the real interest charged on credit cards?

Sukumar Chatterjee wants to know how much he will be charged for rolling over the balance on his credit card. Here’s a ready reckoner on the various fees and charges levied on credit cards.

Print Edition: October 16, 2008

Question: What is the real interest charged on credit cards?

Answer: A credit card is a powerful tool for the informed user. It not only offers the convenience of cashless transactions, but allows you free credit of up to 50 days. However, the same piece of plastic can be a dangerous weapon in the hands of someone who is not conversant with the charges levied on it.

Balance rollover
Charges:
2.5-3% of the amount being rolled over
A credit card allows you to postpone the payment of your bill by a month. You can pay a minimum 5% of the bill and the balance gets rolled over to the next month. You are charged a hefty interest of 2.5-3% a month on the rolled over balance and all purchases made in this month are not eligible for free credit. Suppose you get a bill of Rs 30,000 for the month of September. You can pay Rs 1,500 (5%) and roll over the balance Rs 28,500 to October. The next month’s bill will come with an additional charge of Rs 855 (3% of Rs 28,500), and if you make a purchase worth Rs 3,000 in the first week of October, you will be billed Rs 3,090.

Cash withdrawal
Charges:
Processing fee of Rs 250-300 and an interest of 2.5-3% a month on amount withdrawn
There is no credit-free period for cash withdrawals through a credit card. The interest charged is the same as on the balance rollover, but it is levied on a daily basis from the day of withdrawal till the amount is repaid. The processing fee makes this one of the costliest loans.

Balance transfer
Charges:
Processing fee of Rs 200-500
If you have a large outstanding bill on one card, you can transfer it to another card account and get a lower rate or even a waiver of 3-6 months. Credit card companies offer this facility to wean away customers from their rivals. But balance transfer doesn’t mean you don’t have to pay. It’s just that the bill has shifted to another card.

Fuel surcharge
Charges:
2.5% of transaction value
Every time you use your card at a petrol pump, you are charged an additional 2.5% by the credit card company. If you buy fuel worth Rs 1,000, you will be billed Rs 1,025. However, petro cards and other co-branded cards do not levy a surcharge, while some card companies reward frequent users with waivers.

Forex surcharge
Charges:
Rs 50-200 fee on every transaction and a commission of 3-3.5% of the transaction value
Using a credit card abroad is expensive in three ways. One, the exchange rate offered may not be the best. Also, there is a fee and a hefty commission on all transactions. ATM withdrawals abroad can fatten your bill significantly.

Late or non-payment
Charges: Penalty of Rs 250-500 plus 2.5-3% interest on outstanding amount
If you miss the due date, the credit card company levies a late payment penalty and an interest on the outstanding amount. If you are really faced with a cash crunch, pay the minimum 5% of the bill and roll over the balance. In this manner, you save the penalty charge and avoid the taint of poor credit history. Also, drop the cheque 1-2 days before the due date for it to be credited on time.

Cheque bounce
Charges:
Penalty of Rs 300-500 plus late payment charge and 2.5-3% interest on outstanding amount
Probably the worst thing a credit card customer can do. He is charged under three heads and the credit card company lists him as a bad customer.

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