Charge Card vs Credit Card: What Is The Differences
Credit cards and charge cards are similar but not identical. Both charge cards and credit cards allow you to purchase products with the promise of paying for them later. This article explains the Differences between Charge Card vs Credit Card.
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The primary distinction is in the amount you can charge and when you must pay. While a charge card does not have a spending limit and does not charge interest like a credit card, you must usually pay off the entire sum each month.
Difference
A charge card is a type of payment that allows you to spend without restriction and without paying interest, but the balance must be paid in full at the end of each billing cycle. Annual fees and severe penalties are common on charge cards if the balance is not paid in full.
Charge Card vs Credit Card
You are not required to pay off your entire balance at the conclusion of each payment period. Charge cards are still available through American Express and select gas stations and stores. A charge card is still available from Diners Club.
Although charge cards were the first, they are becoming increasingly rare; credit cards are significantly more common and widely used.
This is due to a variety of factors. Credit cards are more convenient to obtain and allow you to carry a balance from month to month. Charge cards may also have fees attached, making them less appealing. The following are some other significant differences:
The procedure for submitting an application
Because charge cards are created for those with great credit, they might be more difficult to obtain than credit cards. Charge card providers need to know that the person applying can pay off the entire sum each month by the due date.
This is not required of credit card applications.
Maximum credit limit
Charge cards often do not have a defined spending limit depending on your creditworthiness, whereas credit cards do. Because you must pay what you owe in full every month, you are less likely to spend more than you can afford.
If you continue to spend more than you can pay off, revolving credit on a credit card permits you to increase the amount you owe from month to month.
Fees
Late fees are charged on both charge cards and credit cards, but charge cards also have significant annual fees merely to keep the card. Annual fees may or may not be charged on credit cards, but they are usually lower.
The yearly cost for the American Express Platinum charge card, for example, is $695.
A year’s membership in Diners Club Elite will set you back $300. Also, keep in mind that late fees on credit cards are easier to avoid than on charge cards because you only have to make the minimum payment.
Interest
Credit card interest might accumulate if you don’t pay off your entire statement balance each month. In contrast, you’re normally obligated to pay off your charge card’s full balance every month, so if you use it properly, you won’t pay anything more than the cost of your item except for those fees, of course.
Charge card benefits and drawbacks
Charge cards reward and encourage appropriate payment habits by requiring you to pay off your balance in full every month or face steep penalties. This method has certain advantages, but it also has some disadvantages.
Pros
* As previously stated, the necessity to pay off your entire balance each month might help you develop solid financial habits. You get into the habit of repaying your obligation in full rather than deferring it.
* You won’t rack up additional debt by carrying a balance because you won’t be accruing interest by paying in full each billing cycle. You have more flexibility because you don’t have a strict spending limit. Charge cards may offer more benefits and rewards than credit cards. As long as you make your monthly payments in full, you’ll always have credit accessible.
Cons
* There are a limited number of charge card possibilities, and approval requires great credit. Annual fees can be expensive, so if you don’t use your card very often, it might not be worth it. To prevent accumulating up more debt than you can pay off in a month, keep track of what you spend on the card. If you can’t pay off major purchases within the month, you might not be able to afford them.
The benefits and drawbacks of credit cards
Credit cards are a more appealing alternative for many people than charge cards. However, before applying for a credit card, you should balance the benefits and drawbacks.
Pros
* Credit cards allow you to carry a balance from month to month, allowing you the financial flexibility to make large expenditures.
* You can choose from a wider range of credit cards, each with its own set of rules, fees, and benefits.
Credit cards are more generally accepted than charge cards, and you won’t have to deal with the exorbitant annual fees that come with them. You don’t need good credit to get a credit card, but it will help you get better terms, such as reduced interest rates. If you can pay off your debt within the introductory term, balance transfers with a 0% annual percentage rate (APR) can help.
Cons
* You must pay interest, which you do not have to do with a charge card.
* It is easier to get into debt by continually carrying over your balance and making new charges in the meantime. High credit card balances might lower your FICO® credit score. With a charge card balance, you don’t have that problem because you pay it off each month. You are only allowed to spend up to your credit limit.
