Overlimit Fee

An Overlimit Fee is a charge levied by the credit card issuer when a cardholder's total outstanding balance exceeds the sanctioned credit limit.

It is a penalty for crossing the credit ceiling that the bank has set based on your financial profile. The overlimit amount is treated as borrowed funds at a higher rate of interest. What is an Overlimit Fee? When you attempt a transaction that would push your outstanding balance above the credit limit, the bank can choose to either decline the transaction or honour it with an overlimit fee. Some banks allow a small buffer of 5% to 10% above the limit, but transactions beyond that are either declined or permitted with a fee. If the bank approves an overlimit transaction, the overlimit fee is typically 2.5% to 5% of the overlimit amount, subject to a minimum of ₹300 to ₹500. For instance, if your credit limit is ₹1 lakh, your outstanding is ₹97,000, and you make a purchase of ₹8,000, you are ₹5,000 over the limit. At a 2.5% overlimit fee, the charge would be ₹125, and the entire ₹8,000 would be subject to a higher interest rate. Overlimit transactions also reduce the Available Credit to zero or negative. Any subsequent transactions may be declined. The bank may also lower the credit limit over time if overlimit usage becomes a pattern, as it signals credit dependency to the card issuer. RBI has mandated that banks must obtain explicit consent from the cardholder before allowing transactions that take the outstanding above the credit limit. This means you may need to opt-in for an overlimit facility. Without this facility, transactions that would exceed the limit are simply declined at the point of sale. The best way to avoid overlimit fees is to monitor your spending and track your Available Credit regularly through the bank's mobile app. Set a low-limit card as a supplementary card for daily expenses and keep the primary card for emergencies. If you frequently approach your credit limit, consider requesting a credit limit increase with a demonstrated good repayment history, or use a second card to distribute spending and keep individual utilisation low.