What is credit card overlimit facility? How useful is it in emergency, know the advantages and disadvantages before taking it…

Business Desk – In today’s time, credit cards are not just a medium of payment but have become an important part of everyday financial needs. Between online shopping, travel and medical expenses, sometimes situations suddenly arise when more money is required than the fixed credit limit. In such a situation, the overlimit facility of credit card comes in handy.

Under the overlimit facility, the cardholder can spend more than his prescribed credit limit. However, this does not increase your permanent credit limit, but rather allows additional spending for a limited period when needed. Generally, this facility requires the approval of the bank or card issuer and the consent of the customer.

Under what circumstances is it useful?

Credit card overlimit facility can be helpful in situations when money is needed urgently and other options are not available. It can be used for expenses like medical emergency, important travel, accident or urgent home repair.

What are the benefits of overlimit facility?

The biggest advantage of this facility is that additional funds are arranged at the time of need and there is no problem in making immediate payment. If expenses arise suddenly and you do not have enough cash, the overlimit facility can provide relief.

Know these disadvantages before taking overlimit

Overlimit facility is not free. Banks may charge separate fees, interest and tax on the additional amount spent. Generally, major banks of India charge around 2.5% to 3% on the overlimit amount. In many cases the minimum fee can be Rs 500 to Rs 600. Apart from this, 18% GST is also applicable on these charges.

Credit score may also be affected

Your credit utilization ratio increases if you spend more than the credit limit. If this ratio exceeds and payment is not made on time, the credit score may be affected. Additionally, the overlimit facility remains in effect until the excess amount spent is repaid.

How beneficial is it to avail overlimit facility?

If this facility is taken only for emergency needs and for a limited time and the additional amount is paid on time, then it can prove useful. But if the repayment capacity is weak or it is not possible to repay the additional expenses quickly, the overlimit facility may prove costly.

Keep these things in mind before taking overlimit

Be sure to check the bank’s overlimit charges and interest rates.
Get information about applicable taxes and other charges.
Assess your ability to pay the additional expense amount.
Use this facility only for essential and emergency expenses.
Keep in mind the potential impact on your credit score.