What extra charges come with a credit card?
Using a credit card for big purchases can be useful if you don’t have enough money to pay for something upfront, so you can spread the cost over a longer period. However, when it comes to spending on a credit card, you won’t just be paying off what you spend. Depending on your agreement, there are a few other charges you could incur, such as:
- late payment fees
- balance transfer fee
- charge for cash withdrawals
- missed payment fees
- going over your limit
- annual fees
- using your card abroad.
Learning about these fees will make it easier to manage your money and pay off your credit card. By doing this, you’ll avoid any surprises when it comes to your monthly bill.
All credit cards will have an interest rate that you’ll pay if you use it. This is usually presented as a daily rate and as an APR (Annual Percentage Rate) – this is the cost of borrowing the money.
Usually if you pay off your balance in full by the date on your statement, you shouldn’t be charged any interest. This is called the 'interest-free period'.
If you don’t pay it all off, you’ll be charged the daily rate of interest on the whole balance from the date you made the purchase.
You should also be aware that some credit cards can quote several different interest rates. For example, you might be quoted separate interest rates for:
- balances you transfer
- cash withdrawals.
Your credit card statement should tell you the date you need to pay your credit bill. If you pay your bill after the date agreed, you’ll likely be charged a late payment fee.
To avoid this, make at least the minimum repayment by the date stated on your credit card bill. Setting up a direct debit is a good way to avoid late payments.
When you get a credit card, you’re agreeing to:
- repay the lender what you borrow at the interest rate
- repay them by the date they set.
If you don’t stick to this agreement, you may have to pay additional charges, you can avoid this by setting up a direct debit for the minimum repayment each month.
Your credit report could also be damaged if you miss a payment. This will make it more difficult for you to take out other credit in the future, such as a loan or a mortgage.
A missed payment may also result in your lender charging you an additional fee, which you’ll have to pay on top of your repayment with interest.
There are legal restrictions on how much a company can charge you for a late credit card payment. It’s usually up to £12 - if you get charged more than this, you could escalate to the Financial Ombudsman, as this can be viewed as unfair.
If you’re struggling to make your current repayments, get in touch with your lender as soon as possible.
Balance transfer fees
A balance transfer credit card is designed to allow people to manage their existing debt in one place. This means you can pay off your debt altogether rather than getting several bills each month. Many balance transfer cards come with low interest rates – some as low as 0% – for an introductory period. So, using one of these can also reduce the amount of interest you’re paying.
However, these cards usually charge a transfer fee for shifting a balance from one card to another - so make sure you’re aware of this before you go ahead.
It’s also worth noting the introductory rate is only for the period set, after that, you’ll pay interest on the balance.
You should generally avoid withdrawing cash on a credit card. You’ll often be charged interest from the date of the withdrawal rather than when your bill arrives, so it can be a costly transaction.
Going over your limit
Credit cards often have a spending limit set by the lender. If you spend above this limit, you’ll probably have to pay a fee. Exceeding your credit card limit will also show up on your credit report. This will make it difficult to borrow in the future, especially if this happens more than once.
If going over your limit was a mistake and you only went over by a few pounds, get in touch with your lender as soon as possible. Once you have explained the situation, they may not charge you the fee.
Many credit cards don’t have annual fees, but most charge cards or rewards credit cards do.
A charge card often has no interest rate, but you’ll need to pay off your balance in full every month. These cards also frequently come with benefits such as free insurance, airport lounge access or hotel discounts. These are usually aimed at those with a high income and frequent flyers.
In return for these perks, charge cards often come with an annual fee. This is something to bear in mind when deciding whether a charge card is right for you, or if a credit card would be more suitable. Also be aware, these types of cards are generally aimed at those with a good credit score.
Using your card abroad
When travelling, credit cards are more practical to carry about than lots of cash. They’re also more likely to be protected if they’re lost or stolen.
However, there’s usually a fee for using your card abroad. Make sure you check this before you travel, so you don’t get a surprise when you get your bill. Typically, you’ll be charged a fee on top of the exchange rate, so it may be worth looking at a credit card that has been designed for use abroad and doesn’t come with an admin fee.
Always let your credit card provider know before you travel abroad. If you don’t, they may see your spending abroad as suspicious activity and block the card.
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