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Charge cards: How to choose one that’s right for you

Charge cards explained:

Charge cards offer much the same payment and purchasing options as credit cards and function in a very similar manner. They have a similar appearance to credits as well. There are, however, important differences.

What can’t you do with a charge card that you can with a credit card?

The main difference with charge cards relates to how often you need to clear the balance on the card; with a credit card, some of the negative balance can be rolled over to later months, effectively allowing you to use them to borrow money over a longer time-frame .

The balance on a charge card must be cleared at the end of each month – there can’t be a negative balance on the card going into the next month or the cardholder might face fees.

Charge card advantages and disadvantages:

One of the main risks with credit cards is a build-up of debt. Despite this, they are a convenient payment method and allow for flexible budgeting. Charge cards give the same handy payment possibilities without the risk of debt building up. There is the chance of exceeding your budget by spending too much in one monthly cycle (especially if you don’t fix your payment limit in advance), but the risk of unmanageable debt is generally much lower with charge cards.

One disadvantage of charge cards is the fees associated – usually around £100 per year or more. One of the things you may get in return is a list of perks you can avail of with your card: things like breakdown cover, concierge services, travel insurance, reward programs and access to airport lounges are common. The amount and value of perks varies from card to card. It’s important to weigh up the fees versus the perks of a charge card to determine if the extra costs make sense for you.

Charge cards are also advantageous to business owners. If your employees charge expenses, charge cards are a good way to limit and get an overview of staff-members’ expenses per month. Charge cards allow your employees to spend on things necessary for your business without any risk of high interest fees or debt accumulating beyond the monthly repayment time-frame, and also give you an easy way to view these expenditures.

Similar to credit cards, there are requirements for each charge card that need to be satisfied in order to get the card. In many cases these are stricter than the average credit card application requirements. It’s best to verify these requirements before application. In most cases, there are minimum annual or monthly income requirements, which differ widely from one charge card to the next.

One of the biggest benefits of credit cards does not apply to charge cards – the right to also hold the credit card company liable for refund of products or services if you are unhappy with their quality or durability. This is right is protected for credit cards customers under the Consumer Credit Act (Section 75). Unfortunately this section does not apply to charge cards. A direct refund is usually still possible (known as a “chargeback”), but if the seller has gone bust or doesn’t respond to communication, the charge card company is not ultimately liable (which is the case with credit card companies).

Section 75 covers any purchase that costs from £100 to £60,260 made in whole or in part with a credit card (meaning the full amount does not have to be paid with the card, just a portion). This is not the case with charge cards, so if a chargeback is not possible there may not be any other steps you can take to get your money back in the event of unsatisfactory products or services.

What should I look for in a charge card?

The key to finding the right charge card is research – consult the web and shop around, comparing cards from each provider. The offerings will vary widely in their requirements, perks offered, and terms and conditions.

The annual fees that apply to different cards are the main consideration; while some offer generous perks for a high annual fee, others can be more budget-friendly. Whether this makes financial sense also depends on your spending habits – if you travel a lot, for example, the right charge card might save you a lot of money in the long-run. So look for a card that could give you the most benefit for your fees paid, and one that suits your budget.

Charge cards: the verdict

From a financial perspective, charge cards can be a less-risky alternative to credit cards since they require settling each month. However, without setting up spending limits, the possibility of debt build-up, extra fees or card cancellation remains – and the amount still has to be paid back at the end of each month so that needs to be kept in mind.

That said, charge cards are a sensible option, and can be particularly good value for those that travel a lot, or for business who want to keep a handle on their employees’ monthly expenses since they allow easy expense overview and monthly expense caps.

So weigh up the annual fees versus the perks, whether or not the monthly settling requirement suits your spending and budgeting, the terms of each charge card, and bear in mind the lower purchasing protection offered compared to credit cards, and you should be able to make an informed decision when looking for a charge card.