There are always fees you have to bear when using a credit card. If you're getting your first credit card, you don't want to be overwhelmed by all of the costs involved. This includes an annual fee, cash advance fee, interest or monthly fee, balance transfer fee, late fee and more. Read this article to learn and understand what these credit card charges are all about.
If this is your first time getting a credit card, you may be surprised to learn that credit cards aren’t exactly free. You may have the assumption that credit cards only come with interest fees, and while you’re not wrong, there are multiple other charges that may show up in your statement if you’re not careful.
Don’t worry - there’s a way to avoid (almost) all of these. Before we begin, do note that this list is not the exhaustive list of credit card charges. Your bank may or may not have more charges, so for the full list, please check with your respective banks.
Credit card fees explained - for Malaysians!
1. Annual fee
Did you know that most credit cards come with an annual credit card fee? Like a membership card, you’ll be required to pay a certain sum with every year you use the card. This can easily range from a couple hundred ringgits to even a few thousand. There are certain cards that also come with an annual fee waiver if you spend a minimum amount in a year.
Don’t like paying annual fees? (That makes two of us.) There’s a simple way around this - just look for a card with zero annual fee (basically annual fee that’s waived for life).
At time of writing, there are over 50 zero annual fee credit cards on CompareHero. Take a look at some of them here.
The great thing about cards with zero annual fees is also the peace of mind that comes with it. If you’re looking to keep a dormant card active to boost your credit score, a card with an annual fee that’s waived will keep you worry-free from missing out on payments.
Read also: How Cancelling Your Credit Card Can Affect Your Credit Score (Instead Of Helping It)
While you won’t be able to read this in black and white from your bank, there have been multiple times when users get to waive their annual fees just by politely asking for it. “I literally just called my bank, said that the annual fee is steep, and asked them to waive it for me,” CompareHero reader Chan tells us. “True enough, they actually waived the fee for me!”
How to avoid:Look for a card with zero annual fee, or call your bank to waive the annual fee.
2. Cash advance fee
If you’re new to credit cards, you may not realise that you can actually use your credit card to get instant cash from the ATM. However, there’s a reason why this isn’t so popular, and that’s mainly because it’s pretty exorbitant.
Getting a cash advance will come with a one-time fee of 5% or RM20 (whichever higher) + an 18% p.a. daily interest fee.
It gets even more expensive if you’re using this overseas, as the charge will be converted through a currency rate. On top of that, you’ll be charged an administration cost of 1% (or a rate determined by the bank) for the conversion of the transactions!
Now that you know how steep the charges are, it’s always best to ensure you keep enough cash in your wallet and in your savings account. Oh, don’t forget to bring your ATM/debit card with you so you’ll always be able to withdraw from the ATM.
How to avoid:Prepare yourself! Always have sufficient cash on hand, in your e-wallet, or in your savings account… especially if you’re travelling.
3. Interest fees
So by now you’d have heard of the notorious interest fees. In fact, in Malaysia, credit card debt is one of the main reasons behind bankruptcy among youths - albeit not bad enough to be #1.
When you take up a credit card, you will get an interest-free period of 20 days from your Statement Date, and applicable only if you make the full payment by the Payment Due Date. If you make a partial payment, you’ll be charged with finance charges from the day of your transaction.
What kind of financial charges, you ask?
Banks will start you off with a 15% interest rate per annum (or 1.25% per month). This will be the rate if you promptly settle your minimum payment amount for 12 consecutive months.
If you settle your minimum payment amount for 10 months or more in a 12-month cycle, you’ll be bumped up to a 17% interest rate per annum (1.42% per month). In case you can’t math, this bump-up isn’t a good thing - it’s quite the opposite actually.
If you don’t fall within the above categories, you'll be bumped up to a whopping 18% interest rate per annum (1.5% monthly), the absolute maximum that a bank can charge you.
You could say that this tiered charge system seems pretty mean, but in actual fact, it’s put in place to discourage borrowers from growing their debt. The sooner you pay your dues (at least the minimum), the less your chances are of having to pay off more interest.
How to avoid:Just pay off your credit card balance in full every month. If you keep doing this, you’ll never have to worry about paying a single cent on interest!
4. Balance transfer fees
Unfamiliar with balance transfers? This is basically a debt management solution for credit card users with overwhelming debt, where they transfer the outstanding debt from their existing credit card into a new credit card which offers a low (or even 0%) interest fee. They’re usually offered over a time frame between 6, 9, 12, or 36 months for repayment.
When you choose to do a balance transfer, take note that there may be an upfront fee of 0% to 5% (sometimes more) on the balance that you want to transfer.
Let’s say you want to transfer an outstanding debt of RM10,000 to your new balance transfer credit card. The bank imposes a 3% balance transfer fee. In your new account, your RM10,000 will now be RM10,300.
Regardless, a balance transfer will definitely help you save more instantaneously - especially if your current credit card interest is at 18%. To compare balance transfer credit cards to suit your needs, just head here.
How to avoid:Unfortunately, there’s no way around this. It may be worth a shot to speak to the bank directly to negotiate a better deal.
5. Early settlement penalty
There may be times when you want to clear off your debt before the tenure ends. This is mostly pertinent to balance transfer credit cards.
So, let’s say you signed up for a 12-month tenure, but midway through the fourth month, you find out that you’ve inherited a million Ringgit from a random person. To clear off your remaining balance in the fourth month, you may be charged an early settlement penalty as the bank would lose out on your interest in the supposed months to come. This will depend on your bank, so check with them instead.
How to avoid:Unfortunately, there also seems to be no way around this. Speak to your bank to see how you waive this, or bring down the penalty.
6. Late fee
On top of the interest fee, there’s also a late fee for when you, well, make your payment late. This charge would vary between banks, but it’s usually a minimum of RM10 or 1% of the total outstanding balance as at your statement date (whichever is higher).
You’ll be charged this interest rate until the balance you owe is fully paid. You may think that 1% doesn’t seem like a large amount, but if you make it a habit those charges can really add up.
There’s a grace period, and according to Bank Negara:
An issuer shall provide cardholders with a grace period of at least 4 calendar days after the payment due date. This is to cater for payment due dates falling on weekends or public holidays
BNM also states that these charges must not be added to the outstanding amount for computing the interest due to the cardholder.
How to avoid:Don’t be late! Always pay your balance (better if in full) before your next statement date.
7. Betting transactions
Did you know that if you use your credit card to purchase lottery tickets, chips at gaming casinos, off-track betting, and wagers at race tracks, your transaction will be treated as a Cash Advance transaction? All relevant Cash Advance fees and finance charges will apply.
How to avoid:Don’t gamble! If you really want to, use a debit card or cash.
8. Over-the-limit charges
It’s not uncommon to max out your credit card, but when you do that, you exceed your credit limit. In cases like this, you can be charged an over-the-limit fee. This fee will continue to be charged to your account until your outstanding balance is lower than your limit.
However, there are certain cards that don’t impose an over-the-limit fee - you will have to look at the fine print for these cards in order to find out.
How to avoid:If you know you’re about to make a big purchase, call your bank to see if you can temporarily increase your credit limit. Then, make sure that you pay off sufficiently so that your credit balance doesn’t exceed your limit after the credit extension ends. If not, just avoid spending above your limits!
Read also: How to Increase Your Credit Limit (Without Hurting Your Credit Score)
9. Service tax
Since 2018, our government has imposed a service tax on all credit cards. Governed by the Service Tax Act 2018, it requires all cardholders to pay RM25 per card, per year (or part thereof) for all activated/renewed principle or supplementary credit card.
If you upgrade or downgrade your card, you’ll be charged this service tax. However, you won’t be charged for replacement cards arising from lost or spoilt cards or fraud.
The great thing is that RM25 isn’t too big of a dent, but the bad thing is that this fee cannot be waived since it comes from the government. However, there are cards that will allow you to use your rewards points to pay off the service tax!
How to avoid:Nope, nada. As mentioned, you have to pay this fee, one way or another.
The best way to avoid all unnecessary charges is to practice good financial conduct
Pay your statement in full. Don’t miss your payments. Don’t be late. Don’t be unprepared when you travel around - always carry sufficient cash. Spend within your limits…. And the list goes on.
If you notice, these are just a few of the many good financial habits that we’ve been told over and over again by our parents and teachers. While you may not necessarily dodge every fee, with good discipline and conduct, you’ll definitely be able to save on unnecessary charges.