What are credit card late fees, over-limit charges, and GST — and how can you avoid them? | Mint

Credit cards are easy and convenient to use, but they have tax and other hidden fees. You can make better decisions and avoid wasteful spending by understanding late payment fees, GST, and over-limit charges.

What are credit card late fees?

If you do not make the minimum payment due, the bank will charge a late fee (generally between ₹300 – ₹1,000). Fines differ with each bank, and late fees may increase if you frequently do not pay, or if you have a greater amount owed in total.

Simply put, late payment fees serve two purposes.

• Compensation to the lender for their processing costs.
• To discourage non-payment.

What is the rule for late fees on credit cards?

Credit card companies in India must establish a fixed, slab-type rate of charges, rather than charging a percentage of your total balance owing. You will see the due date on the statements, and will have to make the minimal payment by that date to avoid a penalty.

Common differences include:

• Regular late fees (e.g., ₹500).
• Increased cost if you had missed payments consecutively, or already had previous debt.
• Interest charged for an amount that you did not repay.

Tip: Always make at least the minimum payment by the due date to avoid penalties and to reduce adverse action on your credit report.

What happens if you go over your credit limit on your credit card?

When you go over your maximum credit limit, there will be an over-limit fee charged usually just between ₹500 and ₹750, as well as the following:

• Rejecting any transactions that are too excessive.
• Your credit score will suffer, as excessive use is risky.
• Interest is charged on the excess.

Some banks will not authorise the transaction at all, and others have a policy of allowing over-limit purchases if customers opt in. If you hit the limit regularly, consider requesting an increase in limit or consider changing your purchase behaviour.

Understanding GST on credit card charges

GST is charged at 18% on all costs of credit card service, including interest on purchases, late fees, over-limit fees, annual fees, and also processing fees. This tax increases the bank fee.

For example, plus GST, a late fee of ₹500 becomes ₹590. Not to be cavalier, but understanding these costs of tax is part of budgeting so you can see how the costs build up and might simply add to costs over time.

Smart ways to avoid credit card late fees and over-limit charges

1. Set up an auto-debit payment for the minimum amount owed.
2. Monitor your credit usage and avoid exceeding 30-40% of your limit.
3. Use a payback method that syncs with your monthly billing cycle and payday credit.
4. If you create repeatable credit usage, you can request for auto limit increases on time.
5. Review your statement each month and pay particular attention to the fees and GST.

How charges affect your wallet and credit score?

• Late payments usually notify credit bureaus and will usually drop your score between 50-100 points.
• Another indication of bad credit is your ratio of use especially when your ratio from over-limit and other fees can push your ratio higher.
• GST adds to the cost of each penalty and hikes your monthly cost.

Taking some initiative to stay on top of your credit will keep your credit healthy and save you money you’ll never have to pay back with fines.

In conclusion, understanding how late fees, over-limit charges, and GST work gives you the means to keep your finances in check. Your credit card will remain a useful form of value to you, rather than an expensive liability, if you are responsible with it, pay your bills promptly, and regularly review it.

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Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.