Credit cards are beneficial financial tools that offer rewards or cash back and allow users to pay later. However, hidden charges can change the entire financial scenario, mainly when someone fails to notice them. It is an oft-seen scenario where users enroll for credit cards without reading the fine print and later surprise themselves with the number of additional costs that can add up.
In this detailed guide, we will break down all the hidden charges in credit cards, explain their impact, and provide practical examples with a comparison table to help you make informed decisions.
1. Interest Charges – The Cost of Carrying a Balance
One of the biggest hidden charges on a credit card is the interest rate applied when you don’t pay your full outstanding amount by the due date.
How It Works
When you receive your monthly statement, you have two options:
Pay the total outstanding amount (no interest charged).
Pay the minimum amount due (interest charged on the remaining balance).
Example
Suppose ₹50,000 is due in total, and you pay only the minimum amount (let’s say ₹5,000). The balance of ₹45,000 attracts interest at a rate of 2%-4% per month for the remaining period. During one year, this goes on to compound into an APR of 36%-48%!
Tip: Always pay your credit card bill in full before the due date to avoid interest charges.
2. GST (Goods and Services Tax) on Transactions
Every financial service in India, including credit card transactions, is subject to GST.
How It Works
GST is levied at 18% on interest, late payment fees, annual charges, and other credit card-related fees.
It is not charged on retail purchases but on financial services linked to your card.
Example
If your monthly finance charge is ₹1,000, an additional ₹180 (18% GST) will be added, making the total charge ₹1,180.
Tip: Keep track of your card statements and identify GST charges to understand the actual cost.
3. Late Payment Fees – The Cost of Missing Deadlines
A penalty for paying late gets charged if you don’t pay your credit card bill by the deadline.
How It Works
This is not the same as interest charges.
The late fee is a flat amount, depending on your outstanding balance.
Example (Standard Late Fee Structure in India)
Outstanding Balance Late Payment Fee
- ₹0 – ₹500 ₹0
- ₹501 – ₹5,000 ₹500
- ₹5,001 – ₹10,000 ₹750
- Above ₹10,000 ₹1,200
Tip: Automate payments to ensure timely bill payments.
4. Annual Maintenance Fee – The Cost of Keeping the Card
Annual fees are a feature of most credit cards, even those that are advertised as “free.”
How It Works
Some cards waive the first-year fee but charge a renewal fee in subsequent years.
Fees vary depending on the card type (basic, premium, or super-premium).
Example
Basic Credit Card: ₹500 – ₹1,000 per year
Premium Credit Card: ₹2,500 – ₹5,000 per year
Super-Premium Credit Card: ₹10,000 – ₹50,000 per year
Tip: If you use a certain amount each year, some banks waive annual fees. Contact your card provider for eligibility.
5. Balance Transfer Fee – The Cost of Moving Debt
If you transfer your outstanding balance from one credit card to another, a balance transfer fee is charged.
How It Works
The fee is typically 1% to 3% of the transferred amount.
Balance transfer is useful for consolidating debt, but fees can make it expensive.
Example
If you transfer ₹50,000 from one card to another, a 3% fee (₹1,500) will be charged upfront.
Tip: Use balance transfers wisely and compare offers from different banks before opting for one.
6. Cash Advance Fee – The Cost of Withdrawing Cash
Withdrawing cash from an ATM using your credit card incurs cash advance fees and interest charges.
How It Works
A 2.5% to 3% cash withdrawal fee applies (minimum ₹300 to ₹500).
Interest starts accruing immediately, unlike retail purchases where you get an interest-free period.
Example
If you withdraw ₹10,000, a ₹300 fee plus 3% interest from day one will be charged.
Tip: Avoid using your credit card for cash withdrawals unless absolutely necessary.
7. Foreign Transaction Fee – The Cost of International Purchases
When you make purchases in a foreign currency, a forex markup fee is applied.
How It Works
Typically 2% to 3.5% of the transaction value.
Currency exchange rates can also affect the total amount.
Example
If you spend $1,000 abroad (₹83,000 equivalent), a 3.5% forex fee (₹2,905) will be charged.
Tip: Use international credit cards that offer zero forex markup for foreign transactions.
8. Over-Limit Fee – The Cost of Spending Beyond Your Limit
If you exceed your credit limit, a penalty fee is charged.
How It Works
Usually 2.5% of the over-limit amount (minimum ₹500).
Some banks allow transactions beyond the limit but impose this charge.
Example
If your credit limit is ₹1,00,000 and you spend ₹1,10,000, a ₹2,500 over-limit fee will be added.
Tip: Keep your credit utilization below 30% of your credit limit to avoid these charges.
9. Card Replacement Fee – The Cost of Lost Cards
If your card is lost or stolen, a replacement fee is charged.
Example
Basic Cards: ₹250 – ₹300
Premium Cards: ₹500 – ₹1,000
Tip: Report lost cards immediately to avoid fraudulent transactions.
10. Fuel Surcharge – The Cost of Refueling with a Credit Card
Most credit cards charge a 1% to 2.5% surcharge for fuel purchases.
Example
If you fill fuel worth ₹2,000, a ₹40 surcharge (2%) will be charged.
Tip: Use fuel credit cards that offer 100% fuel surcharge waivers at partner petrol stations.
Comparison of Hidden Charges in Credit Cards
| Charge Type | Cost/Rate | Example |
| Interest Charge | 2%-4% per month | ₹45,000 outstanding → ₹1,350 interest per month |
| GST | 18% on financial charges | ₹1,000 finance charge → ₹180 GST |
| Late Payment Fee | ₹500 – ₹1,200 | ₹10,000 due → ₹1,200 late fee |
| Annual Fee | ₹500 – ₹50,000 | Premium card → ₹5,000 annual fee |
| Balance Transfer Fee | 1% – 3% | ₹50,000 transfer → ₹1,500 fee |
| Cash Advance Fee | 2.5% – 3% | ₹10,000 withdrawal → ₹300 fee |
| Foreign Transaction Fee | 2% – 3.5% | $1,000 purchase → ₹2,905 fee |
| Over-Limit Fee | 2.5% | ₹10,000 over-limit → ₹2,500 fee |
| Card Replacement Fee | ₹250 – ₹1,000 | Lost card → ₹500 fee |
| Fuel Surcharge | 1% – 2.5% | ₹2,000 fuel → ₹40 fee |
Avoid hidden charges in This Way!
Pay your bills timely to avoid paying late fees and interest.
Read the conditions of any credit card agreement before signing.
Choose zero annual fees or cashback cards to minimize costs.
Use cards with zero forex markup for international transactions.
Avoid cash withdrawals and over-limit transactions on credit cards.
You may make wise credit card use decisions and avoid paying needless fees by being aware of these charges.