Foreign Transaction Fee on Credit Cards

Using credit cards internationally is convenient, but it comes with additional costs such as foreign transaction charges on credit cards. These charges, also known as credit cards’ international transaction fees, are essential to understand if you frequently travel or make purchases from international merchants. Understand what foreign transaction fees are, how they work, and how they compare across major credit cards.

A foreign transaction fee on credit cards is a charge levied by issuers for transactions involving foreign currencies or banks. This fee applies when you make purchases abroad or shop with international merchants.

It typically covers the cost of currency conversion and the services of global payment networks like Visa or Mastercard. Calculated as a percentage of the transaction amount, it generally ranges between 1% and 3%. For instance, if you spend ₹10,000 overseas and the fee is 3%, you’ll incur an additional ₹300. Being aware of credit cards’ international transaction charges is crucial for managing international expenses effectively.

The foreign transaction fee varies depending on your card issuer and payment network. It generally includes:

• Payment networks like Visa or Mastercard typically charge 1%

• Banks or issuers add 1% to 3%, depending on the card type

For example, if you spend ₹10,000 on a foreign transaction with a 3% fee, you will pay ₹300 extra. These fees are calculated as a percentage of the transaction amount. Tracking credit card international transaction fees helps you budget for overseas expenses more effectively. Opt for cards with lower fees to minimise costs.

Here’s a comparison of foreign transaction charges on some credit cards available on Bajaj Markets:

Understanding the characteristics of foreign transaction charges on credit cards can help you plan better for international spending. Here are the key features to note:

Percentage-based Fee

Foreign transaction charges are typically calculated as 1% to 3% of the total transaction value.

Currency Conversion Fee Included

These charges cover the cost of converting foreign currency into Indian Rupees (INR).

Applicable on All International Transactions

The fee applies to any purchase made abroad or online with a foreign merchant.

Dynamic Fee Components

The fee includes a payment network charge, issuer mark-up, and additional costs.

When you use a credit card for an international transaction, credit card international transaction fees are applied through the following process:

1. Transaction initiation involves making a purchase in a foreign currency

2. The payment network processes the transaction through its system

3. The foreign currency is converted into Indian Rupees at the prevailing exchange rate

4. A fee is applied, including charges from the network and the card issuer

For example, if you spend $100 (₹8,000), a 3% foreign transaction fee will make your total cost ₹8,240.

Currency conversion fees, charged for converting foreign currencies to INR, can add significant costs to international transactions.

• Currency conversion fees apply when foreign currencies are converted into Indian Rupees (INR)

• These fees are included in the overall international transaction charges

• Merchants may offer Dynamic Currency Conversion (DCC), charging your card in INR instead of the local currency

• DCC often results in inflated exchange rates and additional charges, increasing transaction costs

• To minimise expenses, always opt to pay in the local currency during international transactions

• Check and verify the conversion rates applied by merchants or payment networks to ensure transparency and avoid hidden costs

While many credit cards in India do not explicitly charge a separate currency conversion fee, it's important to understand how conversion rates can impact your overall costs.

How Currency Conversion Works:

1. Interchange Fees: These are fees charged by the card networks (Visa, Mastercard, etc.) for processing international transactions. These fees are typically passed on to the card issuer and can influence the final conversion rate.

2. Issuer Mark-up: Some credit card issuers may add a small mark-up to the exchange rate to cover their costs. This can vary from one issuer to another.

Here's a comparison of foreign transaction mark-up fees for some of the top credit card issuers in India. You can apply for them through Bajaj Markets.