Charge cards

Money Advice Service

Charge cards and credit cards are similar, but not the same. So, if you’re not sure whether a credit card or a charge card is right for you, here are the pros and cons of getting a charge card before you make up your mind.

What is a charge card?

Charge cards are like credit cards in that you buy something now and pay for it later – but the big difference is that you have to pay it off in full every month. They can come with extra perks, but there are a few things you need to know before signing up for one.

How charge cards work

Be prepared!

Charge cards aren’t accepted everywhere, so keep a credit or debit card on hand for those unexpected refusals.

You’ve probably heard of American Express (Amex) cards – Amex is the best-known provider of charge cards in the UK, but banks also issue them.

American Express also issues credit cards, so make sure you understand what you’re taking out.

The key difference between charge cards and credit cards is that you have to pay off the money you spend on them at the end of the month.

You can’t run up a bill and pay it back a few months later. If you don’t repay in full, you’ll be hit with interest and other charges, and your card could be cancelled.

A lot of business credit cards and premium credit cards are actually charge cards.

If you want a personal charge card you often need to earn over a certain amount and have a good credit rating.

Some cards are only offered to customers with a very good credit rating, for example, a gold or platinum card rather than a standard one.

Advantages of charge cards

  • You don’t pay interest on any money you borrow with a charge card – but you wouldn’t with a credit card either if you always paid it off at the end of the month and don’t use it for cash withdrawals.
  • There are plenty of perks with the more exclusive cards though there are some very basic cards too without perks. You might get discount or reward schemes, concierge services, travel insurance, breakdown cover or even access to exclusive airport lounges, in return for an annual fee. If you don’t want the perks, ask if they offer a basic card instead with no annual fee.
  • They often have a higher spending limit, or no limit at all, so you can make big purchases without worrying whether the card will cover it – but you need to be sure you can afford to repay in full at the end of the month.

Disadvantages of charge cards

  • You can’t borrow for longer than a month. You have to repay the full bill by the repayment date shown on the statement– you don’t get the option to just pay part of it, like you would with a credit card.
  • If you don’t pay your bill, you’re in trouble. The late payment fees are likely to be much more than the interest on credit card debt, and if you’re a repeat offender your card could be cancelled.
  • There’s often an annual fee for most charge cards, which could be £100 or more.
  • They’re not accepted everywhere. Even some high street chains don’t accept American Express or other charge cards.

Fees and charges

Annual account fees depend on the card.

They might be nothing, or they might be several hundred pounds.

You might be able to opt for a ‘basic’ card, without a fee but then you probably won’t get any of the perks or benefits.

Late payment fees are usually a lump sum of around £15, which you’ll pay every month that you miss the deadline for paying your bill.

On top of that, you’ll pay interest on the balance until it’s repaid. The interest rate is likely to be much higher than for an average credit card – even twice as much in some cases.

For example, if you had a £1,000 balance on your credit card you might pay around £12 in interest over the course of a month.

With a charge card, that could cost you the late fee plus double the interest, a grand total of around £39.

This article is provided by the Money Advice Service.

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