What 'Pre-Approved' Really Means
When a bank sends you a pre-approved credit card offer, it feels like an exclusive invitation. However, 'pre-approved' simply means you've passed a preliminary eligibility check based on your credit score or relationship with the bank. It is not a guarantee
of final approval. You will still need to complete a formal application, and the bank will conduct a more thorough verification of your income and credit history. These offers are often time-sensitive to create a sense of urgency. The final terms, including the credit limit and interest rate, might differ from what was initially advertised.
The Myth of 'Zero-Cost' EMI
‘No-cost’ or ‘zero-cost’ EMI is a popular financing tool during festive sales, allowing you to pay for expensive items in instalments without, supposedly, any interest. However, the Reserve Bank of India has clarified that the concept of zero-percent interest is non-existent. The interest cost is often bundled into the transaction in one of two ways: either you forgo a discount you would have received for paying the full amount upfront, or the interest amount is subtly added to the product's price. On your credit card statement, the bank still charges interest, but this is typically offset by an equivalent discount from the retailer, creating the illusion of a free loan.
Processing Fees and GST
A common charge attached to 'no-cost' EMI plans is a non-refundable processing fee, which can range from 1% to 2% of the product's value. Furthermore, even if the interest is discounted, you are still required to pay Goods and Services Tax (GST) on the interest component of the EMI. GST is also levied on the processing fee itself. While these individual amounts may seem small, they add up, increasing the total cost of your purchase beyond the sticker price.
The Trap of Annual and Joining Fees
Many pre-approved credit cards, especially premium ones, come with a one-time joining fee and a recurring annual maintenance fee. Sometimes, these cards are offered as 'lifetime free' or with a first-year fee waiver to entice new customers. It's crucial to read the fine print to understand if the waiver is permanent or only for a limited period. After the promotional period ends, the annual fee, which can range from a few hundred to several thousand rupees, will be charged to your account.
Charges for Using Your Card
Beyond annual fees, a host of other charges can apply. A foreign currency markup fee, typically 1.5% to 3.5%, is charged on all international transactions, including purchases from overseas websites. Withdrawing cash from an ATM using your credit card triggers a high cash advance fee (around 2.5% of the amount) and interest charges that apply from the day of withdrawal, with no interest-free period. Spending beyond your credit limit also attracts an over-limit fee, which is often a minimum of ₹500.
Late Payments and High Interest
The interest-free period on a credit card only applies if you pay your entire outstanding balance by the due date. If you only pay the minimum amount due, interest is charged on the remaining balance at a very high annual percentage rate (APR), often ranging from 30% to 42%. Missing a payment deadline results in a late payment fee, which is tiered based on your outstanding balance, and negatively impacts your credit score. This is especially important for EMI purchases, where missing an instalment can lead to penalties and a spiral of debt.
