How much does it cost to have a credit card?
Things to consider are:
- Annual Percentage Rate (APR)
- Interest rates
- Late fees
- Over limit fees
- Annual fees
APRs and interest rates
If you do not pay off the full amount due every month, you are charged interest on the outstanding amount. An APR will include the interest rate and any annual fees on the account and is often used as a comparison against similar products. It will not include other fees such as late fees or default fees.
The way the APR is calculated has been standardised by the Consumer Credit (Advertising) Regulations 2004, contributing to improved transparency.
Interest is normally charged on a daily basis on all the amounts shown on the statement, if you -
- Make the minimum payment,
- Make a partial payment, or
- Pay late
You can benefit from an interest free period if you pay off the whole balance for purchases on your monthly statement before the due date. There is no interest free period for cash.
Interest is charged at different rates for different services even if you are using the same card. The different rates will be explained in the terms and conditions given to you when you apply for the card. This information should also be contained in a Summary Box. For example:
- The standard rate is for purchases made with the card.
- A higher rate is usually charged for cash withdrawals.
- There may be a lower rate for special promotions such as balance transfers.
If you fail to make the minimum payments on time you will be charged a fee for late payment. The amount of the fee is usually between £10-£25, but can be more depending on which company your card is with. In certain circumstances, if you contact the company, it may remove the late fee.
Over limit fees
If you go over the credit limit on your credit card, you may also be charged a fee which is generally £25.
Certain credit cards may also have an additional annual charge or fee depending on the credit card company.
| Some facts and figures about credit card spending in the UK:|
- The total credit card outstanding debt rose to £53.5 billion by the end of 2003 — double what it was in December 1998.
- The average credit card debt per cardholder was £1,658 at the end of December 2003. The average cardholder has 2.2 credit cards.
- 54% of credit cards are paid off in full every month. These credit cards account for 77% of all credit card spending. Only 3% of credit card holders pay the minimum payment every month.
Additional "add-on" features
Many cards offer additional "add-on" features including:
- Loyalty schemes - points given for spending. The points are redeemable for vouchers or travel discounts for example.
- Cashback - Some cards have loyalty schemes, which give cash bonuses instead of points.
- Price promise - This means that if you find you could have bought an item cheaper, the company will refund the difference.
- Purchase cover - Insurance covering your purchase for a set number of days against theft or damage.
- Fraud guarantee - This guarantees you against any fraud perpetrated on your card.
- International rescue - This gives you a number to phone from abroad to get help for things like a lost passport, or emergency cash.
- Chip and PIN. Many new credit and debit cards will have a special electronic chip, and instead of signing for proof of ID, you will be asked to key in a pin number.
Using a credit card to make cash withdrawals
You can withdraw money with your credit card. This incurs a handling charge of typically 1.5% of the amount drawn, with a minimum charge of £1.50. Therefore, if you need to draw money out on a regular basis, consider drawing out larger amounts less frequently but remember interest is usually charged from day one.
The UK payments association, APACS, has created www.choosingandusing.co.uk, which provides free and impartial information about choosing a credit card and using a credit card.
In debt and need help?
Call a CCCS counsellor at 0800 138 1111