Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
  • Difference between Credit Cards and Charge Cards

    Credit cards are one of the most popularly used financial products used by individuals across the world today. Credit cards are basically products that allow customers to borrow money against a ‘line of credit’ and repay the same every month, along with a nominal rate of interest. Credit cards are a boon to individuals as they can purchase all their favourite high-end products and services while paying for the same in instalments. However, individuals will have to note that there is a limit imposed on the amount that they can spend.

    A Charge card on the other hand, is slightly different. Customers using Charge cards can also buy products but a line of credit will not be extended to them. They cannot repay the amount in instalments but will have to pay back the entire amount that they’ve spent in one go. In case this is not done, a penalty amount will be levied. Unlike Credit cards, Charge cards do not have applicable interest rates and do not impose limitations on customers regarding their spend limit. Charge card customers are usually privy to a number of offers and perks.

    The concept of Charge cards is supposed to have been founded by the card company that issues Diners Cards called Diners Club International. Other providers include Amex, MasterCard and Visa.

    Charge cards in India are not as commonly used as Credit cards are and this is mainly because most individuals are not aware of this concept.

    Both of these cards allow customers to delay their payments. Individuals will have to repay the amount within a set period of time else a predetermined penalty will be levied.

    However, despite some of their similarities, these cards are not the same. Given below, are some of the important differences between the two.

    Rate of Interest

    Interest rates are applicable on Credit cards. It is calculated as an Annual Percentage Rate or APR and is determined by the credit card type that the customer has, such as travel cards, dining cards, and so on. However, interest rates do not apply to Charge cards. This is because the balance is not carried on a month-on-month basis and there is no credit offered as such.

    However, regardless of the interest rates, customers should pay off their balances prior to due date. Most individuals only pay their minimum balance, but this is financially quite harmful, as these balances will keep accumulating, resulting in a huge pile of debt later on. Additionally, it also has an adverse impact on the individual’s CIBIL score. By not delaying payments, individuals will also not have to pay a lot of interest.

    Limit of Credit

    Credit cards have spend limit imposed on them which is decided based on the customer’s requirements and their credit score and rating. These factors determine an individual’s eligibility to procure a card. In order to make the best use of their Credit cards, customers will have to use it prudently. As long as they use an amount that is within the imposed credit limit and the amount that they pay back each month is above the minimum amount, their credit score will be quite high.

    On the other hand, customers will not have any restrictions or a limit on their Charge cards. There is no credit involved, when it comes to Charge cards, hence customers can use their Charge cards without worrying about credit limits. However, there is a high penalty fee levied on customers incase they do not repay the amount that is owed hence encouraging individuals to repay the amount as quickly as possible. Customers should also note that, judicious use of their Charge cards will result in a higher credit score.

    Balance on the Cards

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

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

    Card Charges

    This varies based on each card. Some cards do not have annual fee but others do. However, interest is charged on all Credit cards for cash advances, transfer of balance and so on.

    Charge cards provide numerous unique benefits to cardholders but an annual fee is charged.

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

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