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The over-limit facility is offered by the bank to help credit cardholders navigate scenarios where they may have to exceed the pre-specified credit limit.
What you should know about the over-limit facility on a credit card.
As the term itself suggests, a credit card over-limit refers to the situation when a cardholder exceeds the credit limit established by the bank. Banks provide the over-limit facility to help users navigate rare scenarios where they may have to overspend. With the over-limit option, credit card users don’t necessarily have to cancel the transaction that crosses the credit limit. However, the over-limit facility is subject to certain terms and conditions specified by the bank.
According to the Credit Card Act of 2009, the cardholder must subscribe to the over-limit protection scheme offered by the bank to be eligible for the facility. Once subscribed, individuals will have to pay a fee to the bank whenever they cross the credit line. The card user can’t make the over-limit transactions if they have not signed up for the scheme.
The act further specifies the fee that banks can charge to such cardholders. Keeping it simple for both parties involved, the fee for over-limit transactions has been set equivalent to the charge applied on the amount by which the credit line has been exceeded. Banks usually charge a penalty of 2.5 per cent on the exceeding amount or Rs 500, whichever is higher. The credit line of maximum spending is influenced by various factors, including:
Credit History: Whether or not you have made your credit card repayments on time and paid your loans and debts within the defined tenure determines how healthy your credit history is. Individuals with a strong credit history usually enjoy a higher credit line.
Income: Your income decides your debt-paying capacity and thus heavily influences the credit line offered to you. However, the debt-to-income ratio is also carefully observed by the bank. The inability to manage existing debts efficiently leaves you susceptible to receiving a low credit limit.
Credit Utilisation: Unused credit may be a sign of strong and responsible financial management and money flow. Banks mark such individuals as disciplined cardholders, who know how to use their credit cards efficiently. Such individuals could get a higher credit limit in the future.
Apart from these factors, the card you are using also determines the credit limit issued to you. Banks and issuers offer their customers various credit cards with different minimum and maximum credit limits. Why, one should opt for the over-limit transaction facility responsibly, understanding the repercussions involved such as increased interest rates and damaged credit score.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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Delhi, India, India
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