Every credit card comes with a credit limit. This limit depends on the type of card that the bank offers you, based on your income and profile in general. In principle, it pretty much works like a loan, since when you transact on your credit card you are essentially borrowing funds from the bank.
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So then the question arises – can you exceed the limit that the bank has extended to you via a credit card? Technically, unlike a bank account, there is no “overdraft facility” on your credit card.
Exceeding your limit on a credit card
That being said, quite a few banks in the UAE do let their customers exceed their credit limits up to a certain point. Most banks that we spoke to set the upper limit of overdrawing at 5% of the existing limit.
You could overdraw on your credit card in two ways:
- Making purchases or performing other transactions above the limit set for you.
- Performing transactions up to the limit set for you, and then not paying the card bill on time, thus attracting finance charges and penalty fees which take you above your limit.
While many banks said that this 5% over limit facility is offered to all customers, some said that it would be decided on a case to case basis at the bank’s discretion. While using this discretion, the bank would take into account many factors such as: your profile, how timely your payments for previous credit card bills were and how often you exceed the limit set for you. However, a few banks told us that any transaction beyond the credit limit would get declined. Hence be sure to find out what your credit limit is and whether you are allowed to exceed said limit on your card in any case.
[Related: Credit card limit increased without asking?]
Over limit fees
Remember though, that while this facility may be available to you, it may not be the best idea to use it too often. Like any other facility, it comes at a cost to you. Here’s a look at the fees you can you expect to pay:
|Bank name||Over-limit fee|
|Emirates Islamic Bank||AED 200 for each transaction that is above your credit limit.|
|ADCB||AED 275 payable as a fee at the end of your billing cycle if you are overdrawn.|
|Rakbank||AED 249 payable as a fee at the end of your billing cycle if you are overdrawn.|
|Dubai Islamic Bank||AED 225 payable as a fee at the end of your billing cycle if you are overdrawn.|
Be sure to use the facility sparingly, if at all. Because added to the fees, don’t forget the high rates of interest you already pay on a credit card. If your bills keep piling up, this interest could start compounding and reaching unmanageable levels.
Also, going over your credit limit could signal to your provider an inability to properly handle the credit that has been extended to you. Your bank may start viewing you as a credit risk if over-drawing is seen as a habit. This may then adversely affect your eligibility for other lending products and the interest rate you could expect to pay in future.