Having a credit card can be financially beneficial. (Reuters)

Having a credit card can be financially beneficial. A credit card helps an individual build their CIBIL score, which in turn helps in obtaining bank loans, among other things, with ease. Also, a credit card can become your best friend during a money crisis. These days, a credit card is used everywhere; From airport lounge access to life insurance to rail booking, these cards can be very useful. But what people normally ignore is the fact that credit cards aren’t free. They have fees; some are known to customers while others are hidden. Little-known fees should be understood to avoid penalties, high interest rates, and overpayment charges afterwards.

– ATM withdrawals:

Credit cards, in addition to giving customers “credit”, also offer cash withdrawals at ATMs. However, this facility by the banks is not free. A transaction fee of approximately 2.5 percent of the cash advance applies. Interest on cash from the date of withdrawal will be charged at 24 to 46 percent per annum. Plus, cash withdrawals attract immediate interest, unlike other credit card transactions.

– Interest charge:

A credit card bill shows the total amount owed and the minimum amount payable – typically 5 percent of the total dues. A lack of knowledge in the matter can lead an individual into a debt trap. Many people only pay the minimum amount payable and leave the rest hanging. In particular, an interest rate of around 2 to 4% is applied per month on the remaining amount. The monthly interest rate is annualized to arrive at an annualized percentage rate (APR) of 36 percent to 38 percent.

– Annual maintenance costs:

When an individual purchases a credit card, they should be clear about the annual fees. Sometimes the annual fee is waived for a limited period. In this case, the fees are applied from the second year.

– Late payment fees:

A person is penalized if they do not pay their credit card dues on time. A flat-rate late charge is levied and is independent of interest charges.

– GST rate:

Prior to the implementation of the GST, the service tax levied on credit card services was 15%. However, after the GST the same was increased by three percent by lenders and now stands at 18 percent.

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