credit card Archives -

How Will the New Rule of Minimum Due of Credit Card Work?

Tue, 27 Dec 2022 07:04:28 +0000

The Buyt Desk

RBI (reserve bank of India) wants card issuers and banks to select a way for calculating the minimum payment due on credit card bills ensuring that it doesn’t result in negative amortization. Unpaid fees, taxes, or levies ‘shall not be capitalized for charging or compounding of interest’ stated the central bank earlier in a master directive – ‘Credit Card and Debit Card: Issuance and Conduct Directions, 2022’.

The banks and card issuers were asked to implement this rule into their practice right from October 1, 2022.

According to Paisabazaar’s Director & Head of Cards – Sachin Vasudeva, “this new rule will require the credit card issuers to apply the minimum amount due at an extent high enough so that the complete outstanding debt can be easily cleared over a certain period.” Moreover, additional penalties, any financing charges, or taxes related to the outstanding amount should not be capitalized in the next statement, he further added.

Working of this New Credit Card Rule

The remaining amount on your credit card account will be applied to some interest if you pay just the minimum amount due on your bill. The interest will also be charged on all new payments. It will continue until you completely pay the previous balance. The interest on the credit card balance will be calculated as: (total days counted from the transaction date x outstanding amount (amount due) x monthly interest rate x 12 months)/365.

Example: –

Your credit card bill is formed on the 10th of the month and you make the purchase of Rs 10K on the 1st of the month. The last (due) date to pay your bill is the 25th of the month and you clear just the minimum amount due of Rs 500. The interest for the next bill would be calculated on the due amount of Rs 9500 for 40 days subsequent bill. It will be the duration from the spending date to the subsequent bill date. The interest will be calculated on your interest each month in case you don’t pay the complete amount and pay just the minimum amount.

If that would be the case, the interest applied over some months can go beyond the usual minimum amount payable of 5% of the due debt when the outstanding value is too high. In that condition, the credit card will gain interest, which eventually increases the due balance. In simpler terms, you would be paying interest over your interest with no overdue decrease. This is an example of negative amortization, stated by Bank Bazaar’s CBO – Pankaj Bansal.

Completely paying the balance is difficult for a consumer when the minimum credit card payment amount is established as highly low. The principle increases over time even with regular minimum payments. Vaishishtha stated that the reason for this is that loan charges and other fees keep collecting with every payment cycle. The due amount will constantly grow if a consumer continues to clear just the minimum amount required every month.

As per RBI regulation, the card issuer can establish a higher minimum balance like 10% of the sum due instead of 5%. It helps in ensuring that the minimum amount consists of principal repayment and due balance interest.

Think360.ai Co-Founder and CEO – Amit Das said that the minimum credit card payment should be equal to or greater than the total amount owed in charges and interest including the sum remaining on the principal of the card.

Let us assume that your credit card account has a due amount of Rs 10K at the month’s end. Interest is calculated at the 2% rate of the month. So, you will have to pay Rs 250 along with tax, other fees of Rs 50, outstanding, plus interest of Rs 200 if you don’t pay the complete amount on or before the due date.

To prevent interest from being calculated in a subsequent statement, the minimum value should be Rs 250. To timely pay the debts, a reasonable amount must go towards your principal payments. Consumers are always recommended to make their complete payment on time unless it’s an emergency. When a financial emergency doesn’t allow you to pay the full amount due before the due date, convert the balance to EMIs (equated monthly installments) at a comparatively lower interest rate.

OTP-Based Permission

The card issuer should initially get OTP-based permission when a consumer has not enabled their card for over 30 days from the issuance date. When the cardholder rejects the card activation request, the issuer has to deactivate the account without putting a charge within 7 working days. Card activation and charges without the knowledge of a customer have occurred most often; by demanding approval, this would not occur and the customer would be charged nothing.

Credit Limit Approval

Credit limit approved and conveyed to the customer should never be increased without the express permission of the customer, stated by card-providing companies. Cardholders will receive just alerts about hikes in credit limits. No card issuer will be allowed to increase the limit after October 1, 2022, without the express written permission of the cardholder.

Interest Rates

Terms and conditions (T&Cs) for credit card balance payment including the minimum amount due must be specified to avoid negative amortization. Taxes, outstanding levies, and other charges should not be applied to charge or compound interest, as per the master circular of RBI. ‘Capitalized interest is the inclusion of due interest charges to the loan balance’ – the American Express website.

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What is the Difference Between Debit & Credit Card?

Sun, 29 Aug 2021 04:20:58 +0000

The Buyt Desk

Credit card and debit card users understand the difference between both, but new users get confused between both cards and treat them as the same. Indeed there are similarities in both cards, such as they both avert the need to carry cash, have similar shapes, acceptable at most places, have 16 digit card numbers, pin codes and expiry dates. But the one key difference — withdrawing funds.

The primary difference between both cards is that a debit card takes the money that is available in your account. A debit card is a means to withdraw money from your account and allows you to make your purchase. The credit card, on the other hand, charges it to your line of credit. With the credit card, you are borrowing money from the card issuer, and eventually, you will have to pay back the amount, with interest if delayed.

The Difference in the Use Of Credit and Debit Card

The debit card and credit card could be used for spending money and are accepted almost everywhere. So, drawing money through a debit card means withdrawing your deposited amount.

The credit card, on the other hand, acts as a mini-loan.

Transaction Limit/Fund Availability

For a debit card, the fund availability depends on the existing balance in your savings account.

For credit cards, it depends on the pre-approved credit limit by the issuer.

Repayment and EMI Facility

The debit card withdraws money from your account so you don’t have to repay anyone. You spend what you have in your account.

The credit card borrows the money from the card issuer institution for a short time. Thus, you need to repay the spent amount. For this, you can either do the minimum due payment or the total outstanding. The institution that has issued a credit card starts charging interest on the spent amount when payment is not made on the due date.

Your Credit Score

Spending through a debit card has no relation to the credit score.

In case of delayed or failed payment, your credit score dwindles, and this will have a long term adverse impact on your credit score.

Charges For Both Cards

The debit card charges include processing fee, annual fee, joining fee, although, these days, most banks provide it free of cost.

The credit card charges include the annual fees, processing fee, foreclosure charges, late payment fee. All these charges are applicable on the credit card with terms and conditions.

Security Of Card

The bank offers low fraud liability with debit cards.

The issuing institution of the credit card offers high fraud liability with the credit card.

Eligibility For Card

An individual above 18 years of age, having a saving/current account in any bank, receives a debit card. Generally, it comes with a savings or current account kit.

The card issuance depends on the individual’s CIBIL score, credit history, transaction history with the bank, etc.

Rewards With Card

Banks offer rewards with a debit card, but they are not very lucrative. Most private banks reward users for spending through debit cards.

Credit card issuers offer lucrative rewards with the credit card, such as discounts on restaurant bills, travel, drinks, etc. Along with that, they also give points for all spendings, and it is monetizable.

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7 Credit Card Fees & Charges that Goes from Your Wallet

Sat, 03 Jul 2021 05:52:20 +0000

The Buyt Desk

Building a good credit score, earning rewards and cashback, and interest-free borrowing are advantages of having a credit card. But at the same time there are a plethora of in-built fees which can make credit cards a costly affair. Keep a credit card when you are 100% sure that you will be diligent with the payments. You must ensure timely and full payment of the dues to prevent the build-up of a surmountable debt. How aware are you about the various charges, credit card fees, and interests applicable to your credit card bill? Let’s take a look at the various charges that you shell out on a credit card.

Annual Percentage Rate (APR)

When you have an outstanding amount on your credit card bill despite paying the minimum due, it incurs an interest daily. You forfeit the interest-free credit period if you make a new payment on the credit card without clearing the due. The yearly interest applicable on the dues is the Annual Percentage Rate (APR). It can range from 23% to 49%. The interest on credit card bill payments is higher than other loans.

Annual Maintenance Fee

Annual Maintenance Fee is a once-in-a-year fee for using a credit card. As a marketing gimmick, you may be offered a maintenance-free card. However, in such cases, the fee applies from the second year. Nonetheless, some banks may waive off the annual maintenance fee on fulfilling a usage target. Annual Maintenance Fee ranges between Rs.500 to Rs.10, 000 for different cards.

Late Payment Fee

Late Payment Fee applies when you are unable to repay the minimum due amount. The due amount determines the value of the late payment fee. Your credit card can be blocked from missing consecutive payments. The payment of the minimum due amount will save the late payment fee, but the APR will be levied on the outstanding amount.

Cash Withdrawal Fee (Cash Advance Fee)

Do not use your credit card at an ATM even by mistake. Cash withdrawal credit card fees is 3% to 5% of the withdrawn amount. Moreover, you do not enjoy interest-free credit on this money. Thus, interest applies from the day of withdrawal until you repay.

Over-Limit Fee

When you exceed the assigned credit limit on your card, you have to pay an over-limit fee. It is 2.5% of the exceeded amount. However, some banks offer a flat rate of over-limit fee depending on your credit limit.

Foreign Currency Markup Fee

Purchases from other countries in foreign denominations incur a foreign currency markup fee. It varies for different banks and card types and ranges from 1.99% to 3.55%. It may be advantageous to use a travel card instead of a credit card when visiting a foreign country. Banks do not charge foreign currency markup fees on using travel cards.

Tax over Fee

Irrespective of the charge or fee that applies on the credit card bill, an 18% GST is levied. If the above charges were not enough to be regular with credit payments, additional tax is a cherry on top.

Here, “responsible borrowing” is the keyword. Be aware of the charges bank levies on the usage of a credit card. You can enjoy the benefits of owning a credit card by paying dues on time.

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5 Things You Must Know Before Choosing a Credit Card

Wed, 04 Nov 2020 08:34:39 +0000

If you are planning to apply for your first credit card, then here is a checklist for what you should look out for before you finalize.

1. What is Annual Percentage rate?

Annual Percentage Rate (APR) is the interest on the dues of your credit card bill. Credit Card interest rates are highest as compared to other loans. The unpai d due attracts interest in the rage of 23- 49%. Many times you are told the monthly rate of interest which looks like a low rate but its charged annually so you must always multiply it by 12. For instance, an SBI prime card takes a monthly interest of 3.35%, which annually comes up to 40.2%.

2. How is Interest applied on a credit card bill?

Interest on a credit card is applicable when you have an outstanding amount on your card. If you end up paying just the minimum due, then the rest of the amount which is due will be charged with interest. Some banks charge interest on the entire purchase price even after the minimum due amount payment. Interest is charged on a daily basis till you clear the outstanding balance. While carrying your previous balance if you make a new purchase then they will attract the interest from the first day onwards. That means you will not get an interest free credit period if there is outstanding on your card.

3) Will the Credit Card attract an Annual Maintenance Fee?

The annual maintenance fee is the cost that you pay for having a card. It is an annual charge on a credit card. You have to make a once a year payment. But many times a card is sold as a free card with no annual maintenance charge. The so-called free card comes with a caveat. It may so happen that for the first year there will be no charge and from 2nd year onwards you may have to empty your pockets. Few cards have a minimum expenditure cap rule on annual fee wherein if you utilize a certain amount of credit and then the yearly charge is waived. Get full clarity on this yearly charge. It differs from bank to bank and also the type of card you choose. It could cost you anything between Rs 500 to Rs 10,000

4) Types of Fees on a credit card

A credit card attracts additional fees in many instances.

(i) Late Payment fee -If you fail to pay the minimum due amount of your credit card, then there is a late payment fee which you are liable to pay. Depending upon the due amount this fee is taken.

(ii) Cash withdrawal fee

Never use your credit card as ATM card to withdraw money. If you do withdraw then be ready for a cash withdrawal fee. It would 2.5% of the withdrawn amount. But there is more to this. Apart from the 2.5% of interest remember cash withdrawal does not get any interest free credit period so the charge is imposed from day one till the time you payback.

(iii) Over limit fee

This fee is charged when you cross your credit limit sanctioned on your card. Crossing the credit limit invites a price which could be 2.5% of the amount that you have spent or a flat rate decided by the bank based on your credit limit.

(iv) Foreign Currency Mark Up fee

Overseas transactions come with a mark-up fee. Credit card users have to pay around 1.99-3.55% as an additional levy on purchase in foreign currency. This fee varies from bank to bank and also depends upon the type of card that you have. For instance, HDFC Regalia credit card charges a foreign currency mark-up fee of 2% of the transaction value, whereas HDFC Time Platinum card charges a 3.5% mark-up fee.

5) Tax on Credit Card

Apart from interest, charges and fee do not forget that all the credit card transaction is levied a GST at the rate of 18%.

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