What is the meaning of a 'free' credit card?

5th November 2015


Nowadays banks are aggressively selling credit cards to their customers. You would be receiving different sales calls every day; different pitches about free credit cards. The question rises, what makes a credit card free? When a sales representative tell you that you will not be charged for your credit card, what is the mechanism behind it? What is the meaning of a 'free' credit card?

Let’s break up the credit card pricing structure into different parts. The first aspect includes the joining fee and annual fee on any credit card. The second aspect revolves around the mark-up rate and various financial charges in case of late payments, foreign currency transactions or cash withdrawals. Most banks nowadays are waiving the joining and annual fee for their customers. To ensure that their product remains competitive in the market, most banks introduce different spending waivers or completely waive the fixed joining and annual costs on credit cards. The second aspect is usually focused around a flat 39% mark-up on outstanding balances and fixed charges in the case of late payments or cash withdrawals. Analyzing this, one draws the conclusion that such charges are variable to an individual’s usage of the credit card and are also dependent on repayments amounts and tenures. In such instances, when the fixed joining and annual fee is waived for an individual, and he repays his utilized credit limits within the allotted due dates, then there is absolutely no charge on the usage of his credit card.

Any individual, availing such a product, and ensuring payments within the due time frame, can claim that his credit card is entirely free. This is what meant by a free credit card.


By Faraz Khan 


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