As a credit card user, it is essential that you know the various types of credit card penalties levied by banks. Forming an understanding of the different types of penalties will help you make better decisions and prevent you from unnecessarily paying them. The most common penalties levied on credit cards by banks are late payment penalties, overlimit penalties, liabilities for lost/stolen cards and annual interest related penalties. Let us learn credit card and take a look at each of the types of penalties in detail and understand how they can be avoided.

Late Payment Penalties on Credit Card

All banks that issue credit cards charge a late payment penalty if the minimum monthly payment isn’t made before the due date. All cardmembers are given an interest-free window period of over 20 days (the interest free period is dependent on the bank issuing the card and the type of card). If the cardmember fails to pay the minimum monthly amount before the due date, a late payment charge of anywhere between S$40 and S$80 is charged – this is again dependent on the bank and the type of credit card issued.

In majority of cases, the minimum monthly payment is about 3% of the monthly outstanding balance. Minimum payments will also include any pending amounts from previous months and any amount that exceeds the credit limit. Late payment charges are not imposed if the minimum payment for the month is made on time.

Over limit Penalties on Credit Card

Over limit penalties are levied by the bank if a cardmember exceeds his/her credit limit. Overlimit charges vary from bank to bank and can be anywhere between S$30 and S$60. As a cardmember, you can avoid paying overlimit penalties by making sure you do not overshoot your credit limit. Moreover, exceeding your credit limit often can have a serious dent on your credit score. Individuals with bad credit scores usually find it difficult to get loan and credit card approvals from banks and financial institutions.

Liabilities for lost/stolen cards

Banks usually impose a liability charge of S$100 in case of lost/stolen cards. In most cases, this can be prevented if the bank is diligently informed about the loss/theft of the card as soon as the incident comes to light. The liability is mostly imposed if any unauthorised transactions have taken place using the card before the bank is informed. 

Cardmembers are required to submit written confirmation on the loss/theft of their card and some banks require customers to lodge a complaint with the local police. The bank investigates claims made by the customer on illegitimate transactions that have taken place and increase the penalty if customers are found to have acted fraudulently or in gross negligence.

The bank can be informed about the loss/theft of a card by contacting the bank’s customer service number and providing details about the card and recent transactions performed using the card. Upon confirmation, the bank will immediately block the card from future transactions. The liability can be avoided if the bank is immediately informed about the loss/theft of the card before any unauthorised transactions take place.

Interest Rate Penalties

The annual rate of interest on a card can increase if customers do not make their monthly payments on time and the credit limit is exceeded once too often. Interest rates can jump by up to 4% or 5% in some cases.

In order to avoid paying a heavier interest on credit card usage, making minimum payments on time and avoiding credit overshooting is recommended. In cases where the interest rates have jumped, customers are required to make monthly payments on a timely basis for at least 6 months before the rates are reverted to their original value. The interest rate penalty usually comes into effect after two or three months of consecutive late payments.

Thus, in order to avoid paying penalties, handling credit card usage prudently is immensely essential. Moreover, periodic penalties levied on your card is certain to impact credit scores. Bad credit scores will limit your approval late for loans and applying for other forms of credit. As long as credit cards are used in a planned and efficient manner, you can avoid paying any form of penalty.

BankBazaar is a neutral third-party financial advisory website that helps customers find the right credit offers based on eligibility and requirements.

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