Published: 02 April 2013 Topic: News,Money,Credit Cards,Family Finance
Many of us prefer the convenience of paying by plastic rather than cash, but whether you choose a credit card or a charge card will depend on your individual needs.
While a credit card will be the right choice for those who don't want to have to pay off what they owe immediately, if you always clear your balance in full each month and are looking for a card which comes with added benefits, it may worth considering a charge card.
Here, we look at the differences between charge cards and credit cards to help you decide which the best option is for you.
Charge cards versus credit cards - how they differ
When you use a credit card for purchases, you will only be able to spend up to a set limit. Each month you will have to make at least a minimum payment of at least 1% of the balance plus that month's interest. Interest will apply to balances not cleared in full.
Credit cards often come with lengthy introductory 0% rates on purchases or balance transfers to tempt customers.
Purchases costing between £100 up to £60,260 made with a credit card are protected under Section 75 of the Consumer Credit Act and Consumer Credit Directive, so the card issuer is jointly liable if something goes wrong. That means if the retailer goes bust, or your goods are faulty,
you can claim a refund through the card provider.
Charge cards, however, don't offer a credit facility. Consequently, there is no spending limit and no interest rate. You can spend as much as you want on the card but you have to pay your bill in full and on time.
If the reason why you like credit cards is because they give you the option to spread the cost of your spending a charge card definitely won't be for you.
Charge cards also often come with an annual fee, but in return for this, you are likely to be offered a range of perks, such as a concierge service, access to airport lounges and insurances. They tend to appeal to high earners and high spenders - often there will be a minimum income requirement, so not everyone will be eligible.
Charge cards aren't covered by Section 75 of the Consumer Credit Act. However, so as not to deter people from using these cards many providers offer protection through a scheme called charge back. American Express, Visa and MasterCard all have chargeback schemes which enable customers to claim for a refund within 120 days of discovering there's a problem. Unlike Section 75, this is a voluntary scheme to which the bank providing your charge card can sign up to. It is therefore not quite as robust although most major providers will adhere to it.
Credit cards vs charge cards at a glance