How many times have you been approached by bank representatives trying to sell credit cards? You may have lost the account. But you know that every time the card sellers contact you, whether over the phone or in public places like malls, they are only singing the praises. Ask them about the hidden costs and penalties, you might find them trying to evade such requests. But why?
Without a doubt, credit cards offer multiple benefits. While timely payment of dues helps increase your CIBIL score, shopping with the card on festive occasions like Diwali can earn you cashback, redeemable reward points and more. You can buy whatever you want and pay later. However, there are also drawbacks and costs that not all users are aware of or try to know about. Take, for example, the credit card cash advance facility that allows you to withdraw money from ATMs. Unlike debit cards, you have to pay interest on cash withdrawn with credit cards.
There are at least five types of financial dangers, including three types of penalties that you have to pay:
1. The cash advance feature provides instant liquidity to consumers. However, a fee is levied on the amount withdrawn by the banks. The fees can range from 2.5% to 3% (minimum Rs 500-Rs 700). For example, a transaction fee of 2.5% or Rs. 300, the higher of the two at domestic ATMs, and 3% or Rs. 300, the higher of the two at international ATMs, is charged by the state Bank of India Card. Likewise, HDFC charges a transaction fee of 2.5% (minimum Rs 500).
3. There is no interest-free period for cash withdrawals by credit card. Thus, the customer has to pay interest on the amount from the first day of withdrawal. Withdrawals of cash by credit card carry a finance charge from the date of withdrawal until the date of full payment. Ex: For the ICICI credit card, these fees are 2.95% per month (APR 41.75% per year).
4. Over Limit Fee: For all credit card transactions, customers must pay an Over Limit Fee if they buy in excess of their credit limits. Banks often approve such transactions attempted by the cardholder as a gesture of service. Example: In the case of ICICI Bank, if the unpaid amount exceeds the credit limit, an over-limit fee of 2.5% of the over-limit amount (subject to a minimum of Rs 300) will be charged. . Over limit status can also occur due to fees or interest charges.
5. If a credit card user makes the deposit after the due date, they must pay a late charge on the outstanding balance to the bank.