Difference Between Credit Card And Charge Card

Written By Sushma Singh

Credit cards and charge cards are two different types of financial instruments with differing spending limits and payment terms. Any customer should understand the difference between the two before picking any of them. So let us delve into the difference between the credit card and charge card.

Credit Cards:

Credit cards are the most renowned form of plastic money that can be used for all financial purposes worldwide. A credit card basically allows it’s owner to borrow money against a ‘line of credit‘ and repay the same every month, along with a nominal rate of interest. It is a quick method where quick and small loans can be made in everyday purchases.

The credit card enables its users to pay only the minimum amount due, which is usually 5%, and one may choose to pay the rest amount later at a certain percent of interest. But, if the cardholder is not able to pay the full balance due, then he is entitled to pay the Annual Percentage Rate that is an additional fee on the remaining balance due.

The credit card users are given two types of choice, either to repay his balance or to break it up so that he can pay it in installments over some time (carried balance), at the cost with added fees.

The credit cards bring for its customers’ lots of offers and rewards in the form of cashback or points which can be later redeemed for various purposes such as airline tickets, free lounge services, cash backs, and various other benefits; these points are awarded to users based on spending money using the credit card.

Also Read: 7 Best Credit Cards With No Annual Fee In India

Charge Cards:

Charge cards are the lesser-known form of financial instrument, which also allows it’s customers to make purchases for which he/she can pay at some later time. The charge cardholders have to pay back the entire borrowed amount each month on the arrival of its due date, and the amount can not be paid in installments. If they are unable to pay the amount in full, then they are subject to heavy fees, and the holder may even lose its charge card.

The charge cards have no pre-set spending limits, which means there is no limit on how much a user is borrowing or spending. And due to this reason, the annual fees charged range from $90 to $450. No pre-set limit means that the credit limit is not set in stone, and is changed month to month by the charge card issuer and is determined on a number of factors such as payment history, credit score, income, or economic climate.

The American Express, also known as AMEX, is the only company providing charge cards in India and only in metro cities and to the people having annual income exceeding 6 lakh rupees.

Basic difference:

The differences between charge cards and credit cards are between their payment terms, spending limits, annual fees, and options available.

Credit cards provide a line of credit and payment in installments, whereas the charge cardholders are not provided with the line of credit and have to pay the entire borrowed amount in one go. Credit cardholders have applicable interest rates and pre-defined spending limits, whereas charge cards do not have such interest rates and limits.

Credit cards are accepted widely due to its popularity and knowledge among people, whereas the charge cards are rarely known.

If one wants to make the best use of their Credit cards, customers should use it properly, prudently, and by understanding all its terms. 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 not be much affected.

The customer can use their charge cards without any credit limit, but if the borrowed amount is not paid on time, the high penalty fee is levied on the customers. And if the borrowed amount is not paid on time, in case of charge cards, there are chances that the customer will lose his/her card, which is not the case in credit card.

A credit card allows it’s users to pay a minimum balance to keep the card going while interest is levied or charged on the outstanding amount, whereas charge cards require payment in full. Annual charges on a charge card are very high as compared to the charges of a credit card.

Is a charge card a better pick than a credit card?

A charge card is a more elite form of a financial instrument as compared to a credit card when it comes to the credit limit. Actually, the credit limits are almost none when we talk about charge cards. Most of the people are not familiar with these charge cards, that too in a world where more than 50 million people use credit cards. There are no banks or financial institutions that provide their customers with charged cards. American Express is the only provider of the charge cards.

Credit cards have less flexible credit limits as compared to that of a charge card. But, If a good credit score is maintained, the credit limit can be increased.

The charge cards are made for high earners as the borrowed amount has to be paid all at once, whereas credit cards are used by a diverse customer base with payment in installments.

If the user is a high spender and a frequent traveler who tends to pay his credit due amount all at once, he/she may consider a charge card instead and avail of luxurious benefits. Also, one has to fulfill the criteria placed by a charge card giver. If the user does not want to spend too much on high annual fees charged by the charge card, he/she may stick to his/her credit card, keeping in mind the usage limit of these cards and negative scores if the limit is extended.

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Sushma is a full-time blogger and financial expert. Join Sushma and 10,000 monthly readers here to learn how to save and invest your money wisely.

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