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ToggleCredit cards have become a key part of managing finances in India, offering perks like interest-free periods, cashback, and rewards. Their convenience makes them a go-to for both daily purchases and bigger expenses. But, while they come with many benefits, it’s essential to be aware of the terms and conditions, including the credit limit and over-limit fees.
One important aspect to understand is the over-limit facility. This allows you to spend beyond your approved credit limit, but it often comes with extra costs and penalties. By knowing how over-limit charges are calculated, what they’ll cost you, and how they could impact your finances, you can use your credit card more wisely and avoid unnecessary fees.
The over-limit facility on credit cards lets select cardholders go beyond their approved credit limit, usually by 10% to 20%, depending on the bank’s rules. For example, if your limit is ₹50,000, you might be able to spend up to ₹60,000 with this feature. This extra spending power is typically extended to clients who have a good track record with their credit card use and repayment behaviour. It can be a lifesaver during emergencies or high-expense times like weddings or festivals.
However, using the over-limit facility comes with additional costs. Charges typically range from 2.5% to 5% of the amount you exceed. So, if your limit is ₹80,000 and you make a purchase of ₹95,000, you’ll incur a fee on the ₹15,000 excess. Remember, the amount you go over your limit isn’t interest-free—the usual interest rates will apply. While some banks may offer waivers for small amounts over the limit or provide lower fees for premium credit cards, it’s wise to check with your bank for their specific terms.
Using this facility is a choice you make as a cardholder. When you go beyond your credit limit, you’ll need to give explicit consent to your bank to allow this extra usage. Banks often approve these over-limit transactions as a helpful gesture, but they expect this option to be used sparingly and only in truly exceptional situations.
There isn’t a one-size-fits-all rule for the over-limit facility; it varies from bank to bank. Typically, you can exceed your limit only by a reasonable amount, and you must agree to the bank’s specific terms and conditions beforehand. If you choose to use this facility, keep in mind that additional charges and interest on the excess amount may apply.
To qualify for the credit card over-limit facility, you generally need to be a responsible cardholder with a solid track record. This means paying your bills on time, keeping your credit usage in check, and maintaining a healthy credit history. If you consistently meet these criteria, you’re more likely to be eligible for the over-limit facility. On the other hand, if your credit score is less than stellar or you’ve had a history of missed payments, banks might be hesitant to offer you this option. Essentially, a positive credit profile increases your chances of being approved for the over-limit feature.
Exceeding your credit limit can lead to a few unwelcome consequences. Most credit card issuers impose an over-limit fee, which might be a percentage of the excess amount or a fixed sum, such as ₹500, plus GST. On top of this, you could face higher interest rates on the over-limit portion, making the extra spending even costlier. Repeatedly going over your limit can also harm your credit score, as high credit utilisation is a key factor in evaluating creditworthiness. Always review your credit card’s terms to understand the specific penalties that apply.
Using this facility itself doesn’t directly impact your credit score since these transactions aren’t reported to credit bureaus. However, habitually exceeding your credit limit can have an indirect effect. Each time you go over your limit, it raises your credit utilisation ratio, which ideally should stay around 30%. Regularly pushing past your limit can signal financial instability, leading to a higher credit utilisation ratio that might harm your credit score over time.
Here are some simple tips to help you avoid those pesky over-limit charges on your credit card:
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Understanding and managing your credit card limit is key to keeping your finances in check and avoiding unnecessary charges. By keeping a close watch on your spending, setting up useful alerts, using credit wisely, and making timely payments, you can steer clear of over-limit fees. Additionally, if you don’t need the over-limit facility, turning it off can help you stay on track. And if you’re often reaching your limit, asking for an increase can make things easier. While the over-limit facility can be handy in a pinch, frequent use can harm your credit score. By following these straightforward tips, you’ll be better equipped to handle your credit card responsibly, avoid extra fees, and maintain a healthy financial profile.
No, the over-limit fee on a credit card is typically charged monthly.
The over-limit fee is calculated based on your card issuer’s terms. Generally, it’s a fixed amount or a percentage of the amount you’ve exceeded your credit limit. Additionally, interest is charged on the over-limit balance, often at a higher rate than your standard rate.
If you exceed your credit card limit, your card issuer may either decline the transaction or approve it with an over-limit fee. Frequent exceedances can negatively affect your credit score, potentially lead to higher interest rates, or even result in account closure.
To remove an over-limit fee, contact your card issuer’s customer service to request a waiver or dispute the charge. Some issuers may remove the fee if you pay the outstanding amount or reduce your balance below the limit, though this is at their discretion.
Instead of using the over-limit facility, you can consider immediate personal loans, gold loans, top-up house loans, or other credit options.