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25 OCTOBER, 2022

Everything You Need to Know About a Credit Card Over Limit Fee

Before using a credit card, you should know specific terms and charges, one of which is a credit card over-limit fee. This fee is generally charged if you exceed your limit of spending on a credit card.

Understanding what a credit card over-limit fee means is crucial to avoid being subject to unnecessary charges that you can avoid if you learn to manage your funds. Explore below everything you need to know about a credit over-limit fee and how it works. 

What Can You Understand by a Credit Card Over Limit Fee?

If you're wondering what the answer to what a credit limit is, here it is: A credit card limit can be defined as the total/maximum amount of credit you can avail yourself of from the credit card provider. The transaction will decline if you make a transaction above the given credit limit. In such cases, your transaction will fail. 

However, many credit card providers allow you to make a transaction despite exceeding the credit limit. Nonetheless, you'll be charged an over-limit fee in such a circumstance. This can be understood as a fee charged as a penalty for making a transaction above the maximum credit card limit in India given to you. 

That said, a credit card over-limit fee may be charged depending on the terms and regulations of the credit card agreement. These penalties are generally levied irrespective of your purchases, financial bills, and other relevant fees that may have led you to spend above the maximum limit. 

So, limit yourself from overspending, so you don't have to be liable to credit over-limit fees.

How do Over Limit Fees Work in Terms of Credit Cards?

According to the rules and regulations of the government, credit card issuers are restricted from charging customers an over-limit fee until and unless the individual has exceeded the spending limit.

Moreover, banks may ask for your permission before charging this penalty fee. If you decline this permission, your whole transaction will fail. On the other hand, if you permit processing the over-limit fee, your transaction will be processed, and you'll be charged a specific amount based on your credit card limit. 

This credit card over-limit fee is typically set once each billing cycle. In situations where your balance stays exceeded, you might need to pay the over-limit fee for a maximum of two consecutive cycles. 

Credit card issuers can charge additional over-limit fees if and when your transaction exceeds the limit again after paying back the previous penalty. This is why you should always spend within your credit limit, so you don't have to pay a penalty fee for exceeding the limit.

Factors That Impact Your Credit Limit

Credit History- One of the most vital factors impacting your credit limit is your credit history. This is the primary element that the best credit card companies take note of when approving your application for a credit limit. The credit limit is set for first-time borrowers based on other equally crucial aspects. 

Credit Utilisation- People who have a significant amount of unused credit on their existing credit cards are considered more thought out and responsible with their finances and can thus get a higher credit limit due to the same. 

Various Sorts of Credit Cards- Another element determining your credit limit depends on your chosen credit card. Many banks and credit card issuers offer multiple credit cards with distinguishing characteristics and policies. Many of these credit cards offer a definite amount of minimum and maximum credit card limit in India that is not impacted by aspects such as your income or CIBIL score. 

Debts and Salary- Your annual income and existing loans are highly critical factors that determine the amount of your credit limit. Note that issuers check the debt-to-income ratio when giving you a credit limit.

Present Credit Limit- Lastly, banks may also look at your present credit limit while deciding on the new credit limit

What is the Penalty Charged for Exceeding the Credit Limit?

Many credit card issuers don't charge an over-limit fee. This means that even if you exceed the spending limit, the credit card providers don't charge any fee. Nonetheless, there are still a good number of issuers that do charge a fee. 

This fee entirely depends on the companies that charge the fee. Generally, credit card issuers charge a fee of Rs.500 on exceeding the credit limit amount. 

You must go through your credit agreement and understand the terms and conditions and the billing statement to determine how exactly your over-limit fee is charged. You should also speak to a customer care representative to get some clarity.

Should You Exceed Your Spending Limit?

Furthermore, a credit card issuer can charge several other fees if not for an over-limit fee. In many cases, your reward points may be forfeited. Thus, whether or not your credit card agreement charges you an over-limit fee or other fees, it is not ideal to exceed your spending limit as this will only cost you. 

You should keep track of your spending and restrict yourself from exceeding the limit. Managing your funds and ensuring that you make your payments on time is crucial to maintaining an excellent credit score and avoiding being charged excessively. 

Bottom Line

Your credit limit can be understood as the maximum spending amount your credit card issuer has allowed you to spend. Anybody who spends above this limit will have to pay an over-limit fee. 

Customers should avoid spending over this limit altogether to limit themselves. While the credit card over-limit fee might vary from one card issuer to other, you still may have to bear a significant penalty. Thus, a wise decision would be to limit yourself from spending above the maximum limit.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.