Credit cards with zero annual fees

When applying for a credit card, you must have heard terms like ‘annual fee’ or ‘annual maintenance charges.’ or even further, ‘zero annual fees.’ But what are these charges?

In simpler terms, an annual fee can be defined as a yearly charge/fee that you are liable to pay to your credit card company or card issuer for opening and maintaining your account. This fee will vary depending on the credit card company, card type, credit limit, and more. Now, this fee can range from a few hundred rupees to a few thousand! But companies offer rewards and several benefits to offset this fee. However, it may still not make a fair deal.

And that is why many card issuers have initiated credit cards with zero annual fees. Now, this practically implies that the company will not charge you any fee for opening or maintaining the account - of course, subject to terms and conditions!

Credit cards with zero annual fees have become quite popular as they not only provide relief from annual charges but also have excellent rewards, offers, and discounts. So, let’s dive deeper into annual fee charges and read more about credit cards with zero annual fees to understand their pros and cons.

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What is the annual fee associated with a credit card?

An annual fee is the cost of owning a credit card. It is a charge levied on a credit card holder when they open their credit card accounts. It is usually a once 12-month payment that cardholders are invoiced for.

Remember, different companies charge different rates and percentages, as will be mentioned in their terms and conditions. While annual charges should not cost you an arm and a leg, your financial obligations may suddenly shoot up with additional charges.

Now, you may wonder if you need to pay these maintenance charges? Well, yes! Read below to know why and how opting for credit cards with zero annual fees may be a good call!

Is paying an annual fee mandatory for credit card holders?

The answer to this question can be both Yes and No. Naturally, credit cards without any annual fee charges require you to pay nothing. But on the other hand, credit cards that charge fixed annual fees will require you to pay their annual fee.

These charges will appear on your monthly statement once a year. It may generally reflect in your first billing cycle and then every 12 months after that. A few companies may even waive off annual fees for the first year as a concession and to attract new customers.

Some credit card companies also provide the option of paying the annual fee in monthly installments. Check with your credit card company to know if you are eligible for such schemes!

It is particularly important for credit card holders to know that they are obligated to pay the annual fee, no matter what. Whether you have used the card or not becomes irrelevant. The credit company has the right to charge you the fee, as would be mentioned in your terms and conditions.

If you fail to meet this obligation, the credit card company may start charging you interest on the unpaid fee and may also pass the report to credit bureaus which may tank your credit score!

With, credit card companies also come up with schemes where they waive off the annual fees for a cardholder if they spend a certain amount on the credit card each year. For example, a credit card company may have a clause where they waive off annual fees for cardholders who spend a minimum of Rs 1,00,000 in a year. This is done largely to encourage credit card holders to spend more in exchange for waiving a measly annual fee.

Why look for credit cards with zero annual charges?

Annual charges by most companies come in a package with additional benefits and rewards ranging from cash backs, mile rewards, discounts at restaurants, insurance to access to luxury lounges at airports, and even shopping coupons! Now, if monetarily, these rewards exceed what you pay in annual charges, it may make for a fair deal to sign up with such cards.

However, if you are paying a hefty annual maintenance fee without any significant benefits, you may rather shift to credit cards with zero annual fees. Doing so will help you reduce your annual fee liability, besides getting access to many benefits that come along with these zero annual fee cards.

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Other credit card charges cardholders must know about

While annual fees/ maintenance charges are well known amongst most cardholders, below are a few additional charges you must be aware of.

1. Over limit charges

The majority of credit cards come with limits –Total limit, cash limit, and more. Depending on the type and nature of your credit card, you cannot spend beyond the limit assigned. However, if you do exceed your limit, your credit issuers may charge you a hefty penalty or over-limit charges, which can range from Rs. 500 to a few thousand.

Tip - Make sure you keep your credit utilization ratio below 30. Not only will this save you from overspending and attracting additional charges, but it will also help keep your credit score stable. Remember, your credit utilization is among the first few factors that a credit bureau will look at to calculate your credit score.

2. Late fee charges

If you miss paying your bills on the due date, you may attract some heavy late payment charges and interest on the amount due. In case you cannot pay the entire amount a particular month (due to any reason), most credit card companies and banks offer a solution wherein you can pay a certain percentage of your outstanding balance called minimum dues or convert the spend into an EMI.

However, remember, this setup does not steer clean you of paying your bills. Rather the amount is carried forward to the next month; any may have additional interest charges levied. The late payment can be a fixed amount or may vary with your statement balance.

3. GST

Your credit card transactions are duly subjected to GST (Goods and Services Tax). Currently, the GST applicable on your annual fee, interest payment, and transactions stands at 18%. All credit card companies are taxed as per this rate, and you must be aware of this since the cost is passed on to you.

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4. Foreign transaction charges

A lot of credit card companies boast that their cards are viable for international transactions, but often fail to reveal extra hidden charges on foreign transactions known as foreign currency mark-up fees. This is a fee that is levied on a card user whenever an international transaction is done. The rates can vary from one card company to another.

Your transaction amount is translated to INR, after which a certain percentage (generally 2%) of the mark-up fee is levied, along with an 18% GST.

Other charges may be returned payment fee, where you would be charged a certain percentage of your bill is returned, i.e., there is no sufficient balance in your account. Or cash advance charges, wherein you can withdraw cash using your credit card but would be levied withdrawal charges going as high as 5%.

Besides all these charges, your bank or issuer may levy additional hidden charges. Hence it becomes paramount that you, as a user, are aware of all your terms and conditions and charges well in advance.

The takeaway

Credit cards, for all their benefits, come with a lot of charges. But, with various offerings, many credit card companies have now come out with zero annual fee cards, providing users with some relief. However, cardholders must be fully aware of all charges, hidden and otherwise, that they will be subjected to when using their credit cards. This will help individuals keep track of their financial obligations and avoid surprise bills and charges.