Credit Card – How it will make money ?
You many been receiving calls asking you to take Credit Card. Do You know how they will make money?
They offer 50 days of interest-free credit to you.
In addition, Credit Card companies issue lakhs credit cards to the people.
Moreover, these companies will make money on the basis of a lack of self-control of the people.
I will tell you different ways that the credit card of the Bank will make money.
1) Interest Rate Charged by the Bank Credit Card …
A large portion of the income for the credit card companies comes from the interest paid on the outstanding from month to month.
In addition, the interest is 3% to 3.5% per month and it varies from bank to bank.
Moreover, the interest rate per annum will be around 36% to 40% which is the highest interest charged in the banking industry.
As most people fail to pay full balance amount on the due date, they end up paying a high-interest rate on the outstanding amount.
So, it is always better to clear the total outstanding amount in order to save yourself from paying a higher interest.
2) Late Payment Fees on Your Credit Card…
Banks may also charge a late payment fee for the credit card bill.
But this fee may depend on the basis of the amount size.
I.e if you failed to pay Rs.5,000 bill on time, you may be charged Rs.300 as a late fee.
In case if the late payment amount is Rs.15,000, then you may be charged a late payment fee of Rs.600.
3) Joining & Annual Fee…
Most Banks will charge while issuing a new card to you.
Some banks may offer you cards without charging joining fees also.
In addition, these banks will charge an annual fee also on your credit card.
These fees may be in between Rs.250 to Rs.5,000 also.
But some banks will waive these charges completely if your credit card bill per year reaches a certain specified limit.
For example, they may say if your total bill per year is Rs.5,00,000, they may waive the annual charges.
4) Cash Advance Fees…
Every Card will offer you a Cash Advance option.
Which is usually 30% to 40% of your credit card.
But if you exercise this option withdrawn cash, then banks may charge up to 2.5% as a fee on the amount you have withdrawn.
Let’s say you have an Rs.1,00,000 limit on your card.
If you have withdrawn Rs.20,000 in cash, then your bank may charge 2.5% on Rs.20,000.
I.e Rs.500 as a fee.
In addition, you should be careful of the fact that the interest rate on the cash withdrawn will be calculated from the 1st day of withdrawal.
Hence, pay the cash amount withdrawn as early as possible.
5) Over Limit Fee…
Banks may reject your transaction if you are trying to transact over and above your credit card limit.
Some Banks will allow over-limit transactions.
But they will charge for the transaction over and above the limit.
In addition, they will charge Rs.500 as a minimum charge for over-limit transactions or 2.5% on the amount which is over and above the credit card limit whichever is higher.
6) A Foreign Currency Transaction Fee by Bank…
Most of the banks will charge 3.5% on every overseas transaction you will do.
Later, the transacted amount will be converted into INR after deducting the currency exchange rate.
7 ) Transaction Charges by the Bank…
Banks will have tie-ups with a lot of the sellers of products and service providers who accept credit card payments.
In addition, the banks will charge 2% to 3% from them, when you buy their products and services.
i.e if you buy Rs.1,000 worth product online using your credit card.
Then if your credit card will charge 2% on Rs.1,000. i.e 20 as the fee.
In addition, the seller of the product receives the only Rs.980.
8) Reissue of Credit Card…
Banks will charge you if your card is lost, stolen, and damaged.
In addition, this charge will be around Rs.100 to Rs.500.
9) Statement of Account Request Charges…
Banks usually mail me your account statement monthly once.
But if you ask a duplicate statement once again, then your bank may charge Rs.100 to Rs.300 depending on the bank.
10) Balance Transfer Charges…
Banks will allow you to transfer balance outstanding bill from one bank to another.
In addition, it is nothing but paying one bank credit card bill with another bank credit card.
But this facility is not free and the bank which is taking balance outstanding from you will charge you a fee.
Always check this balance transfer fee when transferring.
Otherwise, you will end up paying a higher fee.
In addition, you need to pay Gst on the balance transfer.
So, always be aware of all the fees and interest rates of your credit cards.
Otherwise, You will end up making more money to your bank profitable by paying higher interest and charges.
Finally, If you do not use your card wisely, then you not become poor by paying higher interest but also you will make the bank rich.
If you would like to apply for a Credit Card then use this link.
Read the article about “XIRR”. click this link to read.
Also, read the article Why you should not mix insurance with savings. Click this link to read.