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What is the over-limit fee on a credit card and why is it charged?

 

What is the over-limit fee on a credit card and why is it charged?

A credit card user may inadvertently or unknowingly incur unexpected charges due to overspending. One such charge is the "Over Limit Charge"

What is an Over Limit Charge?

An Over Limit Charge is a banking and financial term applicable through a person's use of credit cards or other financial transactions. It is when one spends more than the credit limit or withdraws more funds than permitted without authorization.

 For example, if a credit card's total limit or maximum usage allowance is exceeded, it becomes over the limit. To simplify, if a card's limit is exceeded, it becomes over the limit.

 

Instances where a credit card may become over the limit include:

Interest, Profit, and Maintenance Charges: When we spend money from a credit card, we need to repay it within a specified time. If it remains unpaid or partially paid, additional charges such as interest or outstanding maintenance fees may be imposed. These charges can sometimes be added to the total balance, causing the credit card to exceed its limit.

 

Card-related fees: Each credit card usually comes with an annual renewal fee. For example, if a card's total limit is 100,000, and the cardholder spends 99,000, leaving only 1,000 remaining. If any fees are added, such as a renewal fee of 3,000, the limit will exceed by an additional 2,000, thus becoming over the limit.

 

What is the Over Limit Fee? And Ways to Avoid Over Limit Charges:

The amount of the fee depends on the prevailing policy and schedule of the respective card issuer.

 

Since an Over Limit Charge is a penalty charge, and not a regular one, we can take some precautions while using our credit card to avoid such situations:

 

1. Never exhaust the entire credit card limit; that is, never completely empty the balance.

 

2. Keep an eye on the minimum balance or limit preservation required for your credit card. This depends on whether there is any interest or chargeable balance on your card and how much it may be.

 

3. Keep track of your card's renewal period. If you are close to exceeding the credit limit during the annual renewal, maintain an adequate balance on your card. This ensures that your charges are correctly deducted and that you don't incur any Over Limit Charges.