The Key Differences Between Credit Cards And Charge Cards

Differences between Credit cards and Charge cards

Differences between Credit cards and Charge cards

Credit Cards help you to pay  for your purchases without cash. Credit Cards offer credit or loan that enables you to initiate purchases and pay back the amount later. If you are unable to pay  then the balance due in full, and you will be  charged an interest on the amount owed.

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What Is A Charge Card?

Charge Card works like a Credit Card, but without providing the option of making half payment. You can also pay your charge card bill in full by the due date. Charge cards usually don’t offer a ‘no pre – set’ spending limit. A ‘no pre-set’ limit means that you have been approved based on your spending pattern, credit record, financials,and your account history.

Ways To Use A Credit Card Or Charge Card?

When it comes to using Credit or Charge Cards, they usually  work the same for every end-user. Below are two scenarios of how  one uses these cards- online and offline work.

How To Use Your Cards Online?

  1. While doing any online transaction, you have to proceed to pay and choose the mode of payment as a Credit Card and select your Card for the final payment
  2. Also you have to provide your 15-digit Card number, name of the cardholder, expiry date of the Card along with the CVV.
  3. After entering all the above details and proceeding, The bank forwards an OTP to your registered phone . Provide that OTP, and if it is correct, the bank will approve the transaction.
  4. If your transaction is complete. Finally, you will receive a message on your registered phone on the transaction details on your Card.
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Difference Between Credit Cards And Charge Cards

Credit cards are one of the  popularly  financial products by individuals across the world today. Hence, credit cards are products that enable you to get money against a ‘line of credit’ along with repaying the same every month, with a  certain rate of interest. Credit cards are a boon to individuals as it enables you to purchase all your favorite services and products along with paying for installments. However, individuals will also note that there is a certain limit provided on the amount that they can spend.

Whereas, a charge card is different when you as a customer can buy products but they won’t harm a line of credit.  Also you can’t repay the amount in any installments but you can pay them back in one go , the entire amount .  Unlike credit cards, charge cards do not have applicable interest rates and that wont impose on you . Charge card customers have a number of offers and perks.

Charge cards in  India are used as Credit cards mainly because most people are not aware of this concept.Your cards enable you to delay your payments. Many people will also have to repay the amount within a certain period of time or a predetermined penalty will be levied.

However, despite any such similarities, these cards are not the same. Hence, mentioned below, are some of the major differences between the two.

Also Read: How to Get a Loan Against Your Credit Card

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Rate of Interest

Interest rates are only applicable on Credit cards. Usually it is  calculated as an Annual Percentage Rate and is determined by the type of credit card used  the customer such as travel cards, dining cards, and so on. However, there are many interest rates that do not apply for any Charge cards. As because the balance is not carried on a month-on-month basis and definitely there is no credit offered as such.

However, regardless of the interest rates, you should pay off your balances before the due date. Most individuals also have to pay your minimum balance, also it can be financially harmful, also these balances will keep accumulating,by  resulting in a huge pile of debt later on. Additionally, it will have an adverse impact on the individual’s CIBIL score.

Limit of Credit

Credit cards also have a limit that is imposed on you which is decided depending upon your requirements and your credit score and rating . There are other factors that determine an individual’s eligibility to get a card. Inorder to make the best use of  your credit cards , you will have to use them carefully. However, as long as you use an amount that is within the imposed credit limit along with the amount that you have paid every month is above the minimum amount , then your credit score will be quite high.

On the other hand, you will not have any kind of restrictions or limits on your charge cards. There might not be credit involved , especially when it comes to charge cards. Also, there might not be any credit involved, when it comes to Charge cards.  Hence, you can use your Charge cards without having to worry about credit limits. Also, there is a high penalty fee that you might have to pay if you do not repay the amount that is owed, encouraging individuals to repay the amount as quickly as possible. You should also note the good use of your Charge cards will result in a higher credit score.

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Balance On The Cards

Balances on Credit cards result every month. Based on the type of Credit cards procured as well as your usage, interest rates applicable vary. These uses include cash advances, balance transfers and so on. You need to know that an interest rate will also be charged on the outstanding balance on your credit card.

When it comes to Charge cards, the outstanding balance is paid directly from your bank account and many choose this route so as to avoid paying a hefty interest amount.

Card Charges

Some of the cards do not have any annual fee but others do. However, interest is charged on Credit cards for cash advances, transfer of balance and so on.

Charge cards also provide numerous benefits to cardholders but you will be charged. an annual fee

Both these cards come with your own set of advantages and disadvantages.Your  usage determines your rate as well as the needs of the customer. While procuring either card, applicants must understand your needs and necessities and only opt for those cards that they will use and are advantageous to them.

Credit Cards Vs Charge Cards

Feature Credit Card Charge Card
Has a ‘pre-set’ credit limit Yes No
Is part payment allowed Yes No
Charges Interest Yes No
Annual fee Yes Yes
Influences your Credit Score Yes Yes
Charges Late Payment Fees Yes Yes
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Pros And Cons of Charge Cards

Charge cards aren’t common but they have  benefits that make them worth looking into . The pros are also follows :

Motivation To Pay Off Your Full Balance

In general, it is apt to pay off the balance on your traditional credit cards every month, but , however  it won’t be charged a high late fee even if you don’t . Charge cards will always add motivation to use credit responsibly.

Less Carrying Of Debt

Using charge cards the way you are meant,then  you’ll be provided  the flexibility of paying with credit without the drawbacks of carrying debt.

No Firm  Limit

The best pros is that charge cards don’t give you any specified credit limit, though you won’t be able to spend an unlimited amount. Prior you can make any major purchase, check with your issuer to search out the spending power you’re granted based on your financial history.  Also the way you can use your charge card without worrying that your transaction can be declined.

Drawbacks, that also needs to be noticed;

Less Flexibility To Balance

When you prefer to pay off a big purchase in installments. Carrying a balance can be more expensive and that’s when you charge card can also be a burden

Careful Of Tracking And Spending

Since you might need to pay off your entire balance monthly, it’s imperative that being a  charge card user you should take note of your spending and make sure that you can pay your bill. Tracking and budgeting are also good practices in any case, but it’s a necessity when it comes to charge cards.

Lesser Fee-Free Card Options

Traditional credit cards come in many different varieties, as they include rewards cards that target frequent travelers, foodies and those who spend mostly on gas and groceries. Many traditional credit cards also don’t have  to be annual fees. Charge cards, however, typically also do charge annual fees. Your rewards can be stellar, however you’ll need to make sure that you use the card enough to rationalize paying the fee.

Also Read: 10 Things You Need to Know About Credit Card Processing

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How Can Charge Cards Affect Your Credit Score?

Traditional credit cards receive a credit limit along with balance from month to month. If you use up a substantial amount of your credit limit, then your score can be negatively affected. Charge cards, on the other hand, don’t have credit limits, and the most recent  won’t count your charge card balance toward your credit utilization. In practice, this means charge card balances may not be a factor in your credit score calculations. Hence, as a responsible charge card user, you can check credit score benefits of making on-time payments without any drawbacks of a balance added to your credit report.

Where Can You Get A Charge Card?

The number of charge card options is limited. The remaining major credit card issuers offer the  charge cards for both individuals and businesses. Businesses that operate fleets of vehicles can apply for gas cards that eventually  work like charge cards: Paying for gas for your business’s fleet with the card, at some specific locations that are associated with the card issuer will pay the balance in full each month. Fleet card issuers include WEX, and others.

Deciding Among A Charge Card And A Credit Card

Your spending will typically dictate which type of card can be best for you. You are unlikely to get a balance and if  you are willing to pay an annual fee, then in that case a charge card is worth considering. Traditional credit cards also are the better choice only if you carry a balance from time to time and if you’re more interested in a fee-free card.

If you’re thinking about applying for new credit, it’s important to know where you stand in terms of your creditworthiness. Also you can check your score for free anytime through Experian. Before you apply for any new card, either it’s a charge card or a traditional credit card, you might want to take the opportunity to improve your scores to get the best rates and terms.

Also Read: How To Deal with Credit Card Debt Using Personal Loans

Summing Up

Now, that you know that basic difference between credit cards and charge cards, it should be easier for you to know how, which one is better for you.

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