Whether you have a credit card or not, it pays to know the alternatives to them. If you have a card, you might have heard the term charge card before. However, many people don't really know the difference between a charge card and a credit card, and what the benefits and drawbacks of a charge card are. If you want to know more about charge cards then here are some useful tips to get you started.
What is a charge card?
A charge card is a plastic card much like a credit card, in that you can pay for goods and withdraw money using the card. However, unlike credit cards, the balance of a charge card has to be settled in full each month. The most common examples of charge cards are American Express and Diners Club cards, as well as some gold cards.
Paying the balance in full
The main feature of a charge card is that you have to pay the balance off in full each month. If you currently have a credit card and pay your balance off each month, then having a charge card would be very similar to this. Settling the balance each month means that you can budget an exact amount that you can afford to spend. However, you must remember that if you cannot pay off the balance then the penalty interest will be much higher than a normal credit card.
No limits
Another feature of charge cards is that there are no real pre-set spending limits on the card, meaning in theory you can spend what you want on it. This is brilliant if you can afford to pay off large amounts each month, but can be disastrous if you are not disciplined. You could easily run up very large debts that you have no means of paying off at the end of the month. However, having no limit is useful in an emergency because it gives you more flexibility.
Benefits
Although charge card bills need to be settled each month, many people get charge cards because of the excellent benefits that they offer their customers. Although benefits differ from card to card, privileges can include free travel insurance, as well as access to business lounges in airports. Charge cards are a good tool for people who travel around a lot and want to be comfortable wherever they go.
Not always accepted
One of the main disadvantages of charge cards is that they are not as widely accepted as Visa or MasterCard credit cards. This is because charge card issuers charge a higher percentage to businesses, meaning that a number of them are unwilling to allow purchases with these cards.
Who should get charge cards?
Getting a charge card is really a personal choice, although people who find it hard to budget should not get a charge card. However, if you can afford to pay off the balance in full each month and want to have a card that gives you a large number of benefits, then a charge card might be for you.
It is a new rule that may have the banks running scared. As of May 31, money lenders are no longer allowed to charge sky-high penalties for late payments on credit cards, store cards, mortgages, loans and overdrafts. The most they are, in fact, allowed to charge is £12. And if they do not make the changes to these charges by this date, it is possible that these money lending outfits will be taken to court and made to pay up.
What this means is that outfits like Halifax, which is part of the Bank of Scotland group, can no longer charge £39 for unpaid cheques, direct debits and standing orders. Neither will other banks, which have penalty rates usually about £9 less than this. And on top of this, the people who were charged these staggering rates dating back six years can claim them back.
The Office of Fair Trading made the rule because it felt penalties should be there simply as a way for organisations to recover costs, rather than profit from people who have borrowed money in the first place.
In reaction to the new rule, the British Bankers Association has promised to challenge some of the cases. A spokesperson for the organisation says they thought that the OFT’s decision should only apply to credit cards rather than all sorts of other money lending situations. The reason being, is that the investigation that the OFT carried out before it made the rule was only into the situation surrounding credit cards exclusively.
“We are surprised that the OFT has widened the scope of its ruling when it only spoke to credit card providers. We expect our members to challenge this. We believe our bank’s products provide good value", the British Bankers Association spokesperson says.
But partner at Class Law Solicitors, Stephen Alexander, says banks will have little chance of being successful of a legal challenge against the new rule in a small claims court. “Now that the OFT has decided that anything over £12 is unfair, it will be a lot easier for people to succeed against the banks in the Small Claims Court. People are entitled to claim back charges made within the last 6 years," he says.
While this rule, however, might be bad news for the banks, it provides probably some comfort to all of the people out there who have wracked up debts through accruing credit card fines. At least now they can get some of their money back. And the consumer magazine ‘Which’ can help you.
‘Which’ magazine says for £10, it will provide all the paper work one needs to apply for a rebate on excessive fees. The information can be obtained through the website www.which.net.
Banks make billions of pounds worth of profits each year, so it might seem that this ruling will hardly create even a dent in those profits. But at least it makes them play fair – and give you some of your money back.
Both Peter Kenny & Michael Challiner are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for creditcards-gb.co.uk Please visit us at and. Peter Kenny's top article generates over 368000 views. to your Favourites.
Michael Challiner has sinced written about articles on various topics from Finances, Advertising Guide and Quit Smoking. Loan House is a large website offering its clients . Michael Challiner's top article generates over 165000 views. to your Favourites.