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Foreign transactions on your credit card

Foreign transactions on your credit card

It may be tempting to use your international credit card while on holiday abroad. But use it only in times of emergency, as card providers charge hefty fees for every transaction.

So, you’re headed abroad on holiday and have made the necessary forex arrangements. You’re not sure if it will be enough, but that doesn’t matter. You have an international credit card in case you run out. That’s good, but only in case of emergencies. Using it in regular situations would be very expensive.

When you’ve run out of cash abroad, credit card companies have you right where they want you. Stranded and in need of (expensive) cash. While foreign countries usually have at least a few cards offering very low or no rates for finance abroad, it’s not nearly so in India. Every time you swipe your card or withdraw money, you’ll be paying 3-5% for the cash. Here’s what you’ll incur when you use your card abroad:

Charges for foreign credit
The first thing you think of during a forex transaction is the rate. This rate is usually higher at a bank than at a local forex dealer. Therefore, you’re paying a marginally higher price to begin with. But there’s another charge you must pay.

Foreign currency mark-up: When you use your card abroad, your card provider charges you a transaction fee of 3.5% of the transaction amount. So if you pay a bill of Rs10,000 (in whichever currency), you’re paying Rs350 only to make the transaction possible. In addition to this, you could end up paying a conversion rate if the merchant doesn’t post the transaction to Visa or MasterCard immediately.

Banks with a foreign currency mark-up of less than 3.5% are:

Bank Card Mark-up fee
ING Vysya All cards 3%
Canara Bank Canara Card 3%
HDFC Bank Regalia 2%
HDFC Bank Diners Club 2%
HDFC Bank Diners Club Premium 2.50%

Cash withdrawal fee: If the 3.5% you would pay as foreign currency mark-up bothers you, stay well away from cash withdrawals abroad. If you aren’t aware, there is no interest-free period on cash withdrawals. You start paying interest (around 3.5% per month) the moment you withdraw. In addition to this, you’ll be paying the 3.5% mark-up, too. That’s not it. To even use a cash machine abroad, you will pay a fixed fee, which is usually $2.5. In all probability, this will be the costliest loan you will ever take.

What to do?
– Carry the credit card, for sure. In case of an emergency, the foreign currency conversion mark-up will be more than worth it.
– Avoid withdrawals, only swipe. If you do withdraw, though, pay the money back as soon as you get home, rather than wait for your bill.
– For the cheaper, but still safer, option, just opt for prepaid forex cards. They’re offered by most private banks, have no foreign currency conversion fees and much cheaper overall.

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