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Almost everyone uses credit cards. There are many interesting unknown facts about credit card, which I thought of writing about.

You certainly know that the credit cards come with a limit within which you can spend. But do you know that you can also spend beyond the limit? Even if you don’t have enough limit up to the value of your intended purchase, you can still go ahead and buy by using the ‘over-limit’ facility. However, please remember that not using your credit card with awareness and consciousness and without any control may lead you into a debt trap. Please read the following before making a buying decision beyond the credit limit of your credit card:

Credit Limit:

A credit card comes with a pre-determined limit within which you can spend. Your credit limit is determined by taking your current income, credit score etc., It is being set by the card issuer at the time of issuing. The limit can be periodically revised based on the transactions history and prompt repayment.

Over-Limit:

Every card holder can spend little over the credit limit offered to them. Though the banks don’t explicitly call them out, generally they don’t decline the transactions above the limit. At times, you can spend even above the limits, which is called as ‘over-limit’. Normally, you can spend 10% over and above your limit. It may differ from bank to bank. For example, your card limit is ₹100K. You can transact up to ₹110K and not up to ₹200K or ₹250K.

Over-Limit Charges:

The bank charges you a certain percentage for providing this over-limit facility. It differs from bank to bank. It is normally in the range of 2.5 percent to 3 percent on the over-limit amount, subject to a minimum amount of ₹300 to ₹500.

Side Effects of Over-Limit:

  1. You are going to pay additional charges to the bank.
  2. Your credit score will have a negative impact.

Converting credit card transactions into EMI:

The credit cards offer you to convert your purchases into EMI. The purchase made using the credit limit or with the over-limit, can be converted into EMIs.

However, please remember that your credit limit will be blocked to the entire purchase amount and not only to the EMI amount.

For example, you convert ₹46K into 12 EMI, which is roughly ₹3800. Your credit limit will be blocked up to 46K and not ₹3800. Your credit limit will be released to the amount of EMI, (₹3800 in this case) as and when you repay.

Alternate options:

Are there any alternate options to over-limit? Yes. There are.

1. When you know that the limit available in your credit card is not enough to spend, then you can overpay your card. For example, if you want to buy the laptop for ₹46K and you have a limit of only ₹35K, then you can make a payment of ₹11K to your card. It will show as a credit/payment in your card. By doing this, you can make the purchase for ₹46K and it will not exceed your credit card limit. It will also save you from the side effects (charges and negative credit score) that I mentioned above.

2. You can call your bank and request for a temporary/permanent credit limit increase. Most of the banks will oblige if your repayment history is good.

Verdict:

You can use your credit limit to buy things. If you don’t have enough limit, then you can avail over-limit facility. You can also consider the alternate options. At the same time, don’t forget to note the side effects.

Please remember living beyond the limits/means will lead you to spend beyond your earnings. Over a period of time, over-limit will become new-normal for you and will lead you to a debt trap. So, it is better to avoid it. Will Rogers popularly said, “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.”, The ideal way is to Living within the limits and not beyond the limits.

Author of the book ‘Zero EMI — Unlock Your Financial Freedom’

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