Find out all you need to know about charge cards, what they're used for, and how best to use them.
A charge card works in a similar way to a credit card in the sense that it allows you to temporarily borrow money from your card provider, then pay it back. The major difference between charge cards and credit cards is that where credit cards allow you to carry a balance from one month to the next with interest added, the balance on a charge card must be paid back in full every month.
As such charge cards are not advertised with interest rates, though you will be charged a penalty if you don’t repay your card in full at the end of the month. In this way charge cards work like a one-month loan as there is no ‘minimum repayment’ – you simply clear the balance in full at the end of each month.
What are they useful for?
Charge cards give you access to credit when you need it, without the risk of building up a huge debt by carrying the balance over from month to month or allowing that balance to accumulate interest. As such they are often used by businesses to allow employees to charge money to the card and be paid off at the end of the month – though individuals do use them too.
However a certain level of discipline is required to be able to pay off your balance in full every month, which is why charge cards are usually only accessible to those with a high credit rating – and often only to those earning over a certain salary threshold.
Many charge cards offer rewards schemes as an added incentive to spend, and this can include travel insurance, breakdown cover, or access to ‘exclusive clubs’. You may be given access to a concierge service, for example.
What else should I know them?
The drawback of using a charge card is that there is often an annual fee to pay, which can be as much as £1,000. There are some cards available that don’t charge an annual fee, or whose fee is low, so these are worth looking out for.
Withdrawing cash either abroad or in the UK will also incur a fee, either a percentage of the amount you withdraw or a flat amount that stays the same regardless of how much you withdraw.
It’s worth noting too that though charge cards don’t apply interest to your balances, penalties can be steep if you don’t manage to pay off your full balance at the end of each month – so this is worth considering if you think you may not be able to clear your balance this regularly.
