What the credit card brochure skips
If you’ve picked your credit card based on the brochure, there are five details you’ve missed out. If you think we’re wrong, did you, for example, know that interest rates are dynamic?
We get a credit card to earn reward points, more easily manage monthly expenses and because they’re a big help in case of emergencies. But they can be a deadly product if not used wisely. Now you surely know that you must pay your bill on time because the interest rates are high, but this doesn’t cover everything important. We’ve gone through the terms and conditions of the major credit card providers to tell you what else you need to beware of.
Interest rates are linked to spending
Brochures for credit cards will state a specific interest rate. For example, Citibank’s current rate is 3.15% per month, while ING Vysya’s is 2.75%. This is no lie. In initial months, this is what your rate will be. But after using your card for a few months, you card provider gains insight into your spending patterns. If you spend too much of your card limit or don’t pay your bill in full on time, your rate of interest will increase. How much it will rise to will be in the Most Important Terms & Conditions (MITCs) of your credit card. Citibank can raise it to 3.35%, while ING Vysya can raise it to 3.3% per month.
Cash advance is not credit
You may wonder when you would ever find a use for the cash advance feature, but it can be handy in case of an emergency. If, for example, you’re stranded while on holiday or need some cash to foot bills in case of a medical emergency, you may consider it. Brochures say that you’ll be charged about 2.5% of the amount you withdraw. Usually, you can withdraw about 40% of your credit limit. So if your credit limit is Rs1.5 lakh, you can withdraw Rs60,000 for Rs1,500. You could reason that it’s way easier to do this than get cash so quickly by any other means. But there’s one thing that the brochure doesn’t make clear. Cash advance is not credit; it’s the most expensive personal loan on the market, attracting the same high interest as your credit card. And the meter starts ticking the moment you withdraw.
Expect an annual charge
Companies advise you to read the MITCs but their brochures can appear to be so complete that you may not bother. Several cards on the market are said to be without an annual charge. This is usually misleading. Most often, it’s either the first year’s or first two years’ charges that are waived, but from then on, the annual charge will feature in your bill. Waivers may also be conditional. For example, waives the fee annually if you spend Rs30,000 over the year with its Platinum card (Rs299 a year) and if you spend Rs1.5 lakh with its Jet Airways Privelege Titanium card (`599). Bank of Baroda says its cards have no renewal fee, but on reading the entire brochure, you’ll learn that it applies only if you make 12 transactions in the year.
Pay even if the bill doesn’t arrive
Who better to know what you’ve spent than you? You may not agree, but that appears to be the banks’ logic. It’s your credit card, so it’s up to you to pay it even if you don’t receive the bill. Axis Bank, for example, writes in its MITCs, ‘Non receipt of statement would not affect your obligations and liabilities under this agreement and you shall be liable to settle the outstanding balance on the card within payment due date.’ Even if you plan to take a stand against this, we strongly advise you first pay and then protest this. You don’t want to have to pay the resultant late charges if you lose the case.
Always the exact amount, if not more
If you don’t pay your entire bill in this month, you have to pay interest on all your subsequent purchases until the entire bill is paid. So, even a single rupee can make all the difference. This is why many people who pay by cheque pay a little more than what is asked of them, just to be on the safe side. Also, the payment needs to reach the company by the due date. So if you’re paying your bill by cheque, it’s advisable to do so at least three days in advance. There have also been instances of cheques being lost in the drop box so it is advisable to make the payment online.