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 that it allows you to temporarily borrow money from your card provider, and then pay it back.
The major difference between charge cards and credit cards is that credit cards allow you to carry a balance over from one month to the next: charge card’s don’t.
This means charge cards aren’t advertised with interest rates as your balance should never roll over into the next month. Charge cards work like a free one-month loan – there is no ‘minimum repayment’, you simply clear the balance in full.
What are they useful for?
Charge cards give you instant 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 and paying interest on it.
However, you will be charged substantial penalty fees if you don’t repay your card in full on a monthly basis.
Because of this a high level of discipline is required to manage your charge card properly, often making charge cards accessible to those with a high credit rating only – and even then you may need to earn over a certain salary threshold.
However, a wide array of incentives can make these risks more than worthwhile, with enough discounts and free upgrades offered to make charge cards a very competitive market.
The best charge card for you will as such depend on the play off between penalty charges, annual rates and incentives offered – how you prioritise filtering these factors should depend on how you will use your card.
Charge Cards for Business
If you are a business who regularly needs to wine and dine clients, it might be worth paying higher annual fees to secure offers exclusive to a particular corporate charge card
- Businesses often use a corporate charge card for expense accounts given to individual employees, paying the balance off at the end of each month
- Charge cards for business use is a competitive area, so it is essential to compare charge card rates to ensure you only pay for rewards you will use
Private Charge Cards
- If you intend to use the charge card privately as an alternative to an arranged overdraft, then many people concentrate on finding lower fees and softer penalties
- Rewards schemes can give you access to great deals on travel insurance, breakdown cover, and a host of other benefits (e.g. concierge services)
- Some reward schemes are tied to how you use the card, as an added incentive to spend. Read the small print and compare charge cards to make sure you’ll qualify each month
When it comes to charge cards UK institutions offer a massive array of different products. If you compare charge card rates, penalties and incentives when you shop then the best charge card for you won’t pass you by.
What else should I know?
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 offer a much lower fee. These are worth looking out for, although their range of benefits might be reduced accordingly.
Undertaking a thorough charge cards comparison will reveal where this comes into play, likewise with other fees and conditions.
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.
You should also note 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 – worth bearing in mind if you think you might not be able to clear your balance this regularly.