Understanding Credit cards

A credit card allows customers to make any purchases from buying a Samosa to dream vacation by borrowing money from the issuing bank. The bank charges zero interest on the purchase, provided you pay back the entire borrowed money by payment due date. If the customer pays back lesser than whole borrowed money, then he/she needs to start paying interest on borrowed money from next billing cycle.

There are four card networks across the world, and all credits cards( irrespective of issuing bank) are linked to one of these card systems:

  1. MasterCard
  2. Visa
  3. American Express
  4. Discover

Credit Card Fees & Charges

Below are details of primary credit card fees & charges:

Annual Fees – Fees charged by the credit card company while issuing the card to a customer. Depending upon the type of card, the fees can vary between zero and thousands of rupees.

Renewal Fees – Starting the second year and charged until you keep the card, this is the yearly fees charged by credit card company.

Cash Advance Fees – Credit cards are designed to be used for purchases either in store or online. Hence, if customers withdraw money via ATM using the credit card, you will be charged transaction fees normally ranging between 2.5% and 5.0% depending upon the type of card.

Interest Charges – If you do not pay your complete credit card bill by the due date, customers are charged interest which various from 20.0% to 45.0% ( annually ). Hence we would highly recommend that you always pay your credit cards in full.

Late Payment Charge – If you do not pay the minimum amount by payment due date, you will also need to pay a late payment charge.

Cash Processing Fees – If you make the payment due on your credit card via depositing cash in respective bank branch then banks charge a cash processing fees which varies from Rs 100 to Rs 400 ( per card payment ).

Fuel Transaction Surcharge – Certain credit cards charge a fuel transaction surcharge, if you use your credit card on fuel stations( petrol pumps ) across India.  This cost normally varies between 2.5 % to 3.5% depending upon the card.

Railway Ticket Purchase Surcharge – Certain credit cards charge a railway ticket booking surcharge ( while using IRCTC ). The charges vary between 2.5% to 3.5% of transaction amount, depending on the type of card.

Foreign Currency Transaction – If you use your credit card outside India then credit card companies charge you, Foreign exchange transaction which various from 2.5% to 3.5% depending upon the kind of card.

Government Taxes – Applicable government taxes should be paid on all fees + charges charged by credit cards.

Credit Card Advantages

If a credit card can charge customers so many different kinds of fees then why are they so popular?

  • Convenience – All purchases are tracked, and you receive a detailed statement every month end which outlines your spends. Also you do not have to worry about carrying cash or filling your wallet with change received.
  • Safety – Credit cards have lost/theft and misuse clause via which customers won’t be liable for charges on a card if they report it as stolen within 24 hours.
  • Rewards Points – Most credit cards give customers reward points when used for purchases. The rewards points can be used to pay the outstanding balance, receive free airlines tickets, hotel stays and much more depending upon the cards.
  • Interest-Free Money – If you pay your credit card bills on time, you receive interest-free money from banks for a period up to 50 days ( could be less depending on the bank).
  • Using credit cards will build your CIBIL score(credit score) which is needed when you need to take bigger loans like a car, home loan, etc.

We have researched credit cards in India and classified them broadly based on the type of customers.

Best Free Credit Cards in India ( Good for first credit cards and starting job )

Best Credit Cards in India ( Good for those who have been working for over three years )

Best Luxury Credit Cards in India ( Good for those who want the best )

Have any questions, please leave them in comments section below and we will answer them.