Over-The-Limit Fees Vs. Late Payment Fees: What's the Difference?

 

Credit card companies often charge additional fees when cardholders exceed their credit limit or fail to make timely payments. These fees can add up quickly and lead to financial strain for individuals who are already struggling to manage their debts. It's important to understand the differences between over-the-limit fees and late payment fees so that you can avoid them or minimize their impact on your finances. In general, over-the-limit fees are charged when you exceed your credit limit, while late payment fees are charged when you fail to make your minimum payment by the due date. Understanding the specific terms of your credit card agreement can help you avoid these fees and stay on top of your finances.

 

Key differences between over-the-limit fees and late payment fees:

1. Over-the-limit fees:

In India, over-the-limit fees are charges that credit card issuers levy on cardholders who exceed their credit limits. The over-the-limit fee is a penalty fee that is typically assessed once the credit card holder goes beyond their credit limit. The exact amount of the fee can vary, but it is typically a percentage of the amount by which the cardholder has exceeded their limit.

2. Late payment fees:

Late payment fees are charges imposed by lenders or service providers in India when borrowers or customers fail to make their payments on time. In India, late payment fees are common in various industries, such as banking, insurance, utilities, telecommunications, and e-commerce.

Below is the difference table to help you understand their differences better:

Feature	Over-the-Limit Fees	Late Payment Fees
Definition	Charged when a cardholder exceeds their credit limit	Charged when a cardholder fails to make their minimum payment by the due date
Amount	Typically ranges from 1-3% of the over-the-limit amount, subject to a minimum and maximum amount	Typically ranges from INR 300 to INR 1,000
Trigger	Triggered when a cardholder's outstanding balance exceeds their credit limit	Triggered when a cardholder misses the minimum payment due date
Impact on credit score	Not reported to credit bureaus	Reported to credit bureaus and can have a significant negative impact on a cardholder's credit score
Potential consequences	May signal to lenders that the cardholder is a higher risk borrower, which could lead to future credit denials or higher interest rates	Late payments can stay on a credit report for up to seven years and may be viewed as a sign of financial distress by potential lenders

 

Read More - The Impact of a Co-Branded Credit Card on Credit Score

Bottom line:

In summary, over-the-limit fees and late payment fees are two common charges that credit card companies apply to cardholders who exceed their credit limit or miss their payments. Over-the-limit fees are charged when you go over your credit limit, while late payment fees are charged when you fail to make your minimum payment on time. Both fees can quickly add up and impact your credit score and financial wellbeing. To avoid these fees, it's important to understand the terms of your credit card agreement, regularly monitor your account balance, and make payments on time. If you're struggling to manage your debts or avoid fees, consider reaching out to a financial advisor or credit counselor for guidance.