A CREDIT card nestles a lot of hidden costs – so if you aren’t careful, your monthly statement can come as a huge shock.
Here is a checklist of reasons why you may incur unnecessary credit card expenses:
You don't pay the minimum amount due
Whether you do it knowingly or unknowingly, you will end up paying a late payment fee. This fee varies from bank to bank. If you do not pay for two consecutive months, you become a defaulter. Collection strategy then varies, depending on his risk score arrived ad from the amount outstanding, past record, individual profile/ profession. Further transactions will be blocked.
You revolve your balance
Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.
Your payment cheque bounces
You would have to bear a fee for dishonoured cheques. If you go beyond the due date, you become a delinquent case, and your risk profile shoots up. Also, all charges will be applicable – a fee for a bounced cheque, a late payment fee and monthly interest on outstanding amount.
You cross your credit limit
Your credit limit is the maximum amount that you can spend using your credit card, as dictated by your income profile. But should you decide that you need to spend more, the banks are too clever to block further transactions. Instead they let you spend, and then charge you – perhaps as much as 5% on the exceeded amount.
You transfer your balance from other cards
Some banks make an offer where you pay absolutely no interest or a very low interest, but the dream run doesn’t last long. Most banks let you not pay or pay low interest on the transferred amount for a stipulated period of about three months. Beyond that, you start paying the normal interest. So, if you have transferred your balance, pay off the dues within the stipulated time.
Other precautions you can take:
Do not withdraw cash with your credit card
Apart from paying the regular interest of 2.95%, you will also have to pay a one-time fee of about 2-2.5% for making a cash advance. Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn’t belong to the bank whose credit card you hold. Also remember, when you withdraw cash, you start paying interest from there on, as against getting a free credit period.
You forget to pay your annual chargesIn case you decide not to use your credit card further and you don’t pay the annual charges, you are in for trouble. Remember, you need to get in touch with the bank and intimate them that you don’t want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date.
Thursday, August 28, 2008
Credit cards are like nagging wives
CREDIT cards are a lot like nagging wives -- you can't live with them, you can't live without them. From temporary borrowing, transfer of existing debt, facilitating regular purchase, social status and bill payments etc, credit cards seem to be a one-stop solution. The wife of course is a one-stop solution for everything in life.
But the downside is pretty steep too. High interest, threatening agents, bad credit history etc can follow a credit card And since you plan to enter a long term relationship with both -- it's best you choose carefully. But these days it may be a better idea to spend more time choosing your credit card than your wife because while your wife will forgive you if you forget her birthday, you credit card will not be as forgiving if you forget due day.
So let's see what you need to keep in mind while choosing your credit card:
1. Joining and annual fee
Many credit cards are being offered free for life except a few high-end credit cards. Hence you should ideally go for a card, which has no annual or joining fees. Make sure it's a lifetime offer and not just for the first year.
2. Balance transfer facility
Many consumers look at credit cards as a short-term debt facility. When a consumer is not able to manage the debt with one credit card, he wishes to transfer the debt on the other card. Balance transfer feature could be very useful in such a case.
3. Interest ratesBeware of this one.
When credit card dues are not paid within the given period, banks charge interest on the amount due. If you are taking a credit card to avail a short-term loan, interest rate has to be taken very seriously. Generally these rates vary from 1.33% to 3.15% per month depending on the card type and other features.
4. Credit period
Usually, all banks that provide credit cards extend a free credit period of 21-52 days. This depends upon the type of card and the date of transaction. More the interest free credit period, the more time you have to pay off the due without having to pay the interest.
5. Credit limit
This the is the maximum amount you can spend at a time, using your credit card. This depends on your income, which the bank refers to when issuing you the card. The general outlook is -- higher the credit-limit the better! This is not advisable unless you intend to use the credit card limit.Use our debt evaluation tool to find out if you have borrowed more than your own limit.
6. Customer service
Few years back, customer service was not a greatly developed concept in banking as well as credit cards. Now customer service is a factor to be taken very seriously when going for a credit card. It’s better to go for a credit card offered by a bank with which you already have an existing good relationship.
7. Reward points and cash-back
All banks are trying to attract customer through schemes like reward points. Especially people who intend to use the credit card fairly regularly should look for good reward point schemes.
8. Shopping perks
A good credit card is acceptable with most merchants in the town and across the country. Having tie-ups with multiple outlets, which offer great discounts, and shopping schemes are an added advantage. This also includes the waiver of surcharge at petrol pumps and utility bill payments.
That's a long list isn't it? The smart way to select a credit card is outlining the needs first. Don't go for features that you will never use. Thankfully the path to selecting the right wife is a whole lot simpler, especially in our country -- Just ask your parents to do it for you!
But the downside is pretty steep too. High interest, threatening agents, bad credit history etc can follow a credit card And since you plan to enter a long term relationship with both -- it's best you choose carefully. But these days it may be a better idea to spend more time choosing your credit card than your wife because while your wife will forgive you if you forget her birthday, you credit card will not be as forgiving if you forget due day.
So let's see what you need to keep in mind while choosing your credit card:
1. Joining and annual fee
Many credit cards are being offered free for life except a few high-end credit cards. Hence you should ideally go for a card, which has no annual or joining fees. Make sure it's a lifetime offer and not just for the first year.
2. Balance transfer facility
Many consumers look at credit cards as a short-term debt facility. When a consumer is not able to manage the debt with one credit card, he wishes to transfer the debt on the other card. Balance transfer feature could be very useful in such a case.
3. Interest ratesBeware of this one.
When credit card dues are not paid within the given period, banks charge interest on the amount due. If you are taking a credit card to avail a short-term loan, interest rate has to be taken very seriously. Generally these rates vary from 1.33% to 3.15% per month depending on the card type and other features.
4. Credit period
Usually, all banks that provide credit cards extend a free credit period of 21-52 days. This depends upon the type of card and the date of transaction. More the interest free credit period, the more time you have to pay off the due without having to pay the interest.
5. Credit limit
This the is the maximum amount you can spend at a time, using your credit card. This depends on your income, which the bank refers to when issuing you the card. The general outlook is -- higher the credit-limit the better! This is not advisable unless you intend to use the credit card limit.Use our debt evaluation tool to find out if you have borrowed more than your own limit.
6. Customer service
Few years back, customer service was not a greatly developed concept in banking as well as credit cards. Now customer service is a factor to be taken very seriously when going for a credit card. It’s better to go for a credit card offered by a bank with which you already have an existing good relationship.
7. Reward points and cash-back
All banks are trying to attract customer through schemes like reward points. Especially people who intend to use the credit card fairly regularly should look for good reward point schemes.
8. Shopping perks
A good credit card is acceptable with most merchants in the town and across the country. Having tie-ups with multiple outlets, which offer great discounts, and shopping schemes are an added advantage. This also includes the waiver of surcharge at petrol pumps and utility bill payments.
That's a long list isn't it? The smart way to select a credit card is outlining the needs first. Don't go for features that you will never use. Thankfully the path to selecting the right wife is a whole lot simpler, especially in our country -- Just ask your parents to do it for you!
How your credit card works
Harsh, CEO of apnaloan.com, is the co-author of 'Complete Home Loan Guides'. Through his columns he will take you through all the nuances of loans and credit cards.
The Basics
When you apply for a credit card, the bank you apply to carefully screens your application. You cant blame them given that there is always a crook around the corner.
A credit limit is worked out for you, based on your financial capability and other parameters like income levels, educational qualifications, age etc. The bank that issues you the card is called the 'issuing bank'.
The Business
From the bank's point of view, credit cards are good business for two reasons.
Banks make money through fees from merchant establishment.
The higher than normal interest rate paid by cardholders for the balance in their card.
So what are these merchant establishments? These form the heart of the business. Merchant establishments can be hotels, shops, travel agencies or any place where money transactions are made. The banks that enroll merchant establishments are called 'acquiring banks'.
The relationship between the bank and the merchant establishments is run via international networks such as Visa and Master card.
Your credit card is valid in any merchant establishment that accepts your network (ie Master Card or Visa), irrespective of the issuing bank. Most Indian card issuing banks are part of either Master Card network or Visa network, or both. There are others credit card networks like American Express and Diners Club too.
The merchant establishment finds the credit card a safer and efficient payment mode, and brings more business. The merchant establishment pays a fee to the bank that enrolled it for the service.
The Transaction
When you use a card at an establishment to purchase a product or service, your card is swiped on a swipe-machine. The swipe machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks.
The system verifies with your issuing bank whether you have sufficient credit to cover the purchase in a few seconds, and approves or rejects the transaction. As soon as approval comes through, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card.
The charge slip is then forwarded to the acquiring bank, which in turn settles the transaction with the merchant. The issuing bank also proceeds to bill you for payment as per the cardholder agreement. The acquiring bank will settle the transaction with your issuing bank through the network.
Sounds pretty straightforward? Then you're wondering why credit cards are such accursed instruments? That happens when you delay payments and get caught in an interest cycle. When you use a credit card you have the option to pay only a part of the total amount spent and carry forward the balance. But in such a case you will have to pay interest on all your purchases without any free credit period.
You can save yourself only if you are prompt in paying the balance by the due date. Credit card users get a free period of credit before they reimburse the credit card issuing bank. This may vary from 15 days to 40 days depending on the issuing banks.
The Basics
When you apply for a credit card, the bank you apply to carefully screens your application. You cant blame them given that there is always a crook around the corner.
A credit limit is worked out for you, based on your financial capability and other parameters like income levels, educational qualifications, age etc. The bank that issues you the card is called the 'issuing bank'.
The Business
From the bank's point of view, credit cards are good business for two reasons.
Banks make money through fees from merchant establishment.
The higher than normal interest rate paid by cardholders for the balance in their card.
So what are these merchant establishments? These form the heart of the business. Merchant establishments can be hotels, shops, travel agencies or any place where money transactions are made. The banks that enroll merchant establishments are called 'acquiring banks'.
The relationship between the bank and the merchant establishments is run via international networks such as Visa and Master card.
Your credit card is valid in any merchant establishment that accepts your network (ie Master Card or Visa), irrespective of the issuing bank. Most Indian card issuing banks are part of either Master Card network or Visa network, or both. There are others credit card networks like American Express and Diners Club too.
The merchant establishment finds the credit card a safer and efficient payment mode, and brings more business. The merchant establishment pays a fee to the bank that enrolled it for the service.
The Transaction
When you use a card at an establishment to purchase a product or service, your card is swiped on a swipe-machine. The swipe machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks.
The system verifies with your issuing bank whether you have sufficient credit to cover the purchase in a few seconds, and approves or rejects the transaction. As soon as approval comes through, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card.
The charge slip is then forwarded to the acquiring bank, which in turn settles the transaction with the merchant. The issuing bank also proceeds to bill you for payment as per the cardholder agreement. The acquiring bank will settle the transaction with your issuing bank through the network.
Sounds pretty straightforward? Then you're wondering why credit cards are such accursed instruments? That happens when you delay payments and get caught in an interest cycle. When you use a credit card you have the option to pay only a part of the total amount spent and carry forward the balance. But in such a case you will have to pay interest on all your purchases without any free credit period.
You can save yourself only if you are prompt in paying the balance by the due date. Credit card users get a free period of credit before they reimburse the credit card issuing bank. This may vary from 15 days to 40 days depending on the issuing banks.
Why 'cash-back' never returns!
Ketul H Shah is a Chartered Accountant and an MBA. He has specialised in Banking, Finance and Insurance. Ketul is passionate about consumer rights and is actively offering professional advice to consumer-related matters. His mantra: "To help customers find a solution to their problems."
REMEMBER that sinking feeling when you walk out of a mall only to realise that you have blown up a bomb? Blame it on the marketing guys! They make it all sound so enticing.These guys spend hours holed up in their cubicles thinking of new and innovative ways to make you part with your moolah. But we believe that forewarned is forearmed. Watch out for these 'schemes'!Dangerous liaisonsThe bank offers cash-back on the purchase or usage of credit cards at some specific companies/retail outlets with which they have a tie-up. Your monthly statement will reflect the cash-back on the amount you have spent. You can benefit if you use the correct card and buy specified goods or services in line with terms and conditions. The discount is actually borne by the tie up partner and the bank as per an agreement.Minimum is maximumThis offer is available on any goods purchased i.e. there is no tie-up with any retail outlet. The customers will benefit if they fulfill certain specified conditions such as the minimum amount you that should spend to qualify for a cash back.
Point scamSome banks offer reward points on usage of their credit card. The reward points or cash (depending on what you choose) can be redeemed against various credit card charges. This is an indirect way of extending the cash-back offer to the customer.Remember one thing, no matter how its presented, cash-backs will always be subject to certain terms and conditions.
For eg:1. Minimum purchase of Rs 2,000 per card swipe: Banks earn a commission between 0.5 and 2.5 per cent, per swipe from merchants for every swipe you make.
2. Purchase through particular card swipe machines: The banks ensure that the credit card gets swiped on their machine. The cost saved is shared as cash-back reward with the customers.
3. Exclusion of particular items: For example, items with a very low margin are not considered valid for cash-back.
4. Variable cash-back based on lucky number: If the last four digits of your credit card is 1234 then the bank would offer, say, 50% cash-back on your purchase. This has an element of luck and people love to give it a try.
5. No exchange: Cannot be used in conjunction with any ongoing offer at a retail outlet.
6. For a limited period, only: Banks believe that if a customer is given more time, he can plan his shopping to a overspending.A shopping thumb rule: be wary of any offer that makes you spend more!
Disclaimer: While I have made efforts to ensure the accuracy of my content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
REMEMBER that sinking feeling when you walk out of a mall only to realise that you have blown up a bomb? Blame it on the marketing guys! They make it all sound so enticing.These guys spend hours holed up in their cubicles thinking of new and innovative ways to make you part with your moolah. But we believe that forewarned is forearmed. Watch out for these 'schemes'!Dangerous liaisonsThe bank offers cash-back on the purchase or usage of credit cards at some specific companies/retail outlets with which they have a tie-up. Your monthly statement will reflect the cash-back on the amount you have spent. You can benefit if you use the correct card and buy specified goods or services in line with terms and conditions. The discount is actually borne by the tie up partner and the bank as per an agreement.Minimum is maximumThis offer is available on any goods purchased i.e. there is no tie-up with any retail outlet. The customers will benefit if they fulfill certain specified conditions such as the minimum amount you that should spend to qualify for a cash back.
Point scamSome banks offer reward points on usage of their credit card. The reward points or cash (depending on what you choose) can be redeemed against various credit card charges. This is an indirect way of extending the cash-back offer to the customer.Remember one thing, no matter how its presented, cash-backs will always be subject to certain terms and conditions.
For eg:1. Minimum purchase of Rs 2,000 per card swipe: Banks earn a commission between 0.5 and 2.5 per cent, per swipe from merchants for every swipe you make.
2. Purchase through particular card swipe machines: The banks ensure that the credit card gets swiped on their machine. The cost saved is shared as cash-back reward with the customers.
3. Exclusion of particular items: For example, items with a very low margin are not considered valid for cash-back.
4. Variable cash-back based on lucky number: If the last four digits of your credit card is 1234 then the bank would offer, say, 50% cash-back on your purchase. This has an element of luck and people love to give it a try.
5. No exchange: Cannot be used in conjunction with any ongoing offer at a retail outlet.
6. For a limited period, only: Banks believe that if a customer is given more time, he can plan his shopping to a overspending.A shopping thumb rule: be wary of any offer that makes you spend more!
Disclaimer: While I have made efforts to ensure the accuracy of my content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Monday, August 25, 2008
Credit card charges hiked by up to 50%
When it comes to exorbitant interest rates, even the loan sharks, the neighbourhood moneylenders can learn a few tricks from the banks which have raised the charges to as high as nearly 50 per cent per annum for their credit card customers in the past few days.
Over the past few days, nearly all the banks starting from PSU giant SBI to private sector leaders like ICICI Bank and HDFC Bank and foreign players such as Deutsche Bank and HSBC have either raised or are in the process of raising the "finance charges."
Interest rates on credit cards set to go up
These rates, between 35 and 50 per cent at present, are charged on credit card users for payments made after credit free period, which ranges from 15 days to two months. These are over three times the current benchmark prime lending rates of less than 15 per cent at most of the banks.
The high rates are being charged despite a National Consumer Disputes Redressal Commission (NCDRC) ruling last month that "charging of interest at rates in excess of 30 per cent per annum from the credit card holders by banks for the formers' failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practise."
‘Rising credit card defaults worrisome’
To top it all, these high charges, which varied between 30-40 per cent till some days back, get a mention only in the asterix-marked fine prints of credit card statements and there is virtually no limit to what level these could be raised.
On their part, banks claim it has become necessary to raise these charges, which a customer has to pay after the expiry of his or her credit-free period, in the wake of tightened liquidity in the system.
More India business stories Get the latest Sensex update
However, while the hike in interest rate for secured lending products like auto and home loans have been mostly about 0.5- 1.0 per cent, the unsecured credit card finance charges are being increased by about 10 per cent.
Over the past few days, nearly all the banks starting from PSU giant SBI to private sector leaders like ICICI Bank and HDFC Bank and foreign players such as Deutsche Bank and HSBC have either raised or are in the process of raising the "finance charges."
Interest rates on credit cards set to go up
These rates, between 35 and 50 per cent at present, are charged on credit card users for payments made after credit free period, which ranges from 15 days to two months. These are over three times the current benchmark prime lending rates of less than 15 per cent at most of the banks.
The high rates are being charged despite a National Consumer Disputes Redressal Commission (NCDRC) ruling last month that "charging of interest at rates in excess of 30 per cent per annum from the credit card holders by banks for the formers' failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practise."
‘Rising credit card defaults worrisome’
To top it all, these high charges, which varied between 30-40 per cent till some days back, get a mention only in the asterix-marked fine prints of credit card statements and there is virtually no limit to what level these could be raised.
On their part, banks claim it has become necessary to raise these charges, which a customer has to pay after the expiry of his or her credit-free period, in the wake of tightened liquidity in the system.
More India business stories Get the latest Sensex update
However, while the hike in interest rate for secured lending products like auto and home loans have been mostly about 0.5- 1.0 per cent, the unsecured credit card finance charges are being increased by about 10 per cent.
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