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Annual fees explained

Some credit card companies charge an annual fee to customers just for the “privilege” of having a card with them.  Generally you pay the fee whether you use the card or not.

Annual fees used to be a common feature of most credit cards, but these days they are more unusual. In fact, you’re more likely to find the fee on credit cards that offer rewards, such as cashback and air miles.

If your credit card charges an annual fee, remember this is charged as well as any interest you pay for your purchases. It doesn’t matter how often you use the credit card, you’ll still have to pay the annual fee. Because of this, it’s worth avoiding any credit cards that charge an annual fee if you don’t plan to spend much with it, as the benefits of having the card are unlikely to outweigh the cost. 

“It’s worth closely checking the terms and conditions to find out this information...”

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How can I find out the annual fee?

A few credit card providers still charge an annual fee, but, as we mentioned earlier, you’re more likely to find it on credit cards that offer rewards or cashback. For example, credit cards with interest-free periods sometimes charge annual fees.

The annual fee will be included in a credit card’s APR so you can see how much it will cost to use the card with this fee included. However, the specific portion of the APR that the annual fee accounts for may not be specified, so it’s worth closely checking the terms and conditions to find out this information. 

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How much is an annual fee?

Just how much an annual fee will set you back depends on your credit card provider. You’re unlikely to find one for less than £25, and they can go up to £100 or higher.

As the cost of an annual fee is included in the APR, you should be aware of the full cost of taking out a credit card before you apply. However, if you’re not sure whether you’re being charged a fee, check with your lender. You don’t want to be paying more when you could be getting a better deal with a card that doesn’t charge a fee.  

“The best deals are usually only available for a limited time and to borrowers with the best credit histories...”

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Who charges an annual fee?

In many cases, the credit cards that offer the best rewards also have the highest annual fees attached to them. This is to help cover the cost to the lender of rewarding borrowers for their spending.

Let’s take a look at some of the rewards on offer: 

Cashback on purchases

Credit cards that offer cashback on purchases can be very tempting. This type of card pays you a certain percentage of the amount you spend each month, and it’s often the case that the more you spend on the card the more you earn. However, the best deals are usually only available for a limited time and to borrowers with the best credit histories.

Interest-free periods

Other credit card providers may offer extended interest-free periods, which means you won’t have to pay any interest on your spending for an agreed amount of time. Some of these cards may even offer cashback as well, but these are also typically more likely to charge an annual fee.

Rewards points

Some credit card providers will reward you with points to spend at specific retailers, like supermarkets or petrol stations. Many supermarkets and high street retailers even offer their own rewards-based credit cards, which give an incentive to loyal shoppers to collect rewards points to spend with them.

Air miles

These credit cards reward you with points as you spend, which you can redeem for flight tickets. Because of this, they’re especially suited to those who frequently travel for business.

However, you’d probably have to spend quite a lot before you earned enough for an entire flight ticket, and it may take even longer to save for a long-distance flight.

“Whatever type of credit card you sign up to, it’s worth setting up a standing order to cover at least the minimum payment each month...”

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Is it worth it?

All these perks might sound very tempting, but before you apply for a rewards credit card it’s important you do your sums to make sure the rewards you can earn are worth more than the annual fee you’re charged. If they’re not, it might be a better idea to look for a credit card that doesn’t come with an annual fee and is cheaper to use.

Regardless of rewards offers, you should never spend more than your means on a credit card. If you fail to make at least the minimum repayment each month, you’ll be hit with penalty charges by your lender and you’ll also damage your credit history. This will make it difficult for you to borrow again in the future – particularly if you apply for the products with the best rates or rewards.

Whatever type of credit card you sign up to, it’s worth setting up a standing order to cover at least the minimum payment each month. That way you don’t have to worry about missing it.

However, the best way to use a credit card is to only spend what you can afford to pay back each month, and then clear your balance immediately. That way you avoid paying any interest and your credit history will show other lenders that you’re a responsible borrower. This means that in the future, you could qualify for some of the best credit card deals on the market.

We hope this guide has cleared up any questions you had about credit card annual fees.

Know if you're accepted before you apply with QuickCheck

  • Get credit - up to £1,500
  • QuickCheck won’t affect your credit rating
  • Get a fast response in 60 seconds

34.9% APR Representative (variable)
Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender

Check Now