Credit Card Most of the users are young. Credit cards are being used a lot for shopping and online booking. Due to this, many people are getting trapped in the burden of debt. Every day, calls come from some bank to get a new credit card. Have you ever wondered why banks make so much effort to sell credit cards? Let us tell you that banks earn a lot from credit cards. Let us know how banks earn money?
These are the ways in which banks make money through credit cards:
Interest on credit card
Banks usually do not charge interest on purchases for 45 days. But after the due date, the interest rate for credit cards is between 30 to 48 percent per annum. Many people are not able to pay their bills in full. In that case, banks charge a hefty interest. At the same time, many times after converting a big purchase into EMI, banks charge interest. This gives a lot of income to the bank.
Merchant Fees
Banks charge a fee whenever you make a payment using your credit card. Banks charge this fee to the merchant. Merchant fees are shared between banks and the credit card processing network. Merchant fees are usually between 2-3 percent.
Marketing tie-up charges
Co-branded credit cards, issued by banks in collaboration with brands or service providers, charge marketing tie-up fees. Such cards offer a variety of benefits. By partnering with banks, brands try to reach more customers by offering various discounts.
Other charges levied on credit card
Credit cards levied a variety of charges on customers such as withdrawal fees, annual fees, late payment fees, balance transfer fees, foreign transaction fees, etc.
- Withdrawal Fees: This fee is charged when you withdraw cash using a credit card. It is usually 2.5 to 3 percent of the total transaction amount.
- Annual Fee: This is the fee charged every year for maintaining the credit card. It varies from bank to bank.
- Balance Transfer Fee: A fee of 3 to 5 per cent is charged when you transfer debt from one credit card to another.
- Foreign Transaction Fee: Credit card users pay fees on transactions paid in foreign currencies, which range from 1 to 3 percent.
- Late Fee: Banks levy late fees if the credit card user fails to pay the minimum amount by the due date. However, banks offer some concessions on this fee. It ranges between 14 to 40 percent.
