What is a charge card and how is it different from a credit card?

    The very definition of a charge card differentiates it from a credit card. A charge card is one that does not offer a credit facility, i.e. the payments must be paid in full each month. Therefore there is no concept of a minimum due with a charge card. A credit card on the other hand is a credit facility allowing customers to spend up to a certain limit and repay in partial or full payments.

    Credit Cards VS Charge Cards

    Charge cards and credit cards are often interchangeably used. So let’s understand the difference between the two and the purpose of each of these cards so we can start using the right term when describing each of them.

    What are the features of charge cards and credit cards and what separates one from the other?

    Credit Facility

    The name “credit” card suggests that it offers a credit facility where you can stretch your repayments over a period of time. This means that credit cards have a variable repayment schedule that allows you to pay the minimum due, the total outstanding due or any amount in between on a month- on- month basis.

    Charge cards on the other hand do not offer a credit facility. This means that you have to pay your bills in full every month. You can say that charge cards operate on a comparatively fixed repayment schedule wherein whatever amount you spend this month, you have to pay it in full the next month, not more, not less.

    Credit Limit

    Depending on your annual income and various other factors, banks offer you a pre-set credit limit on your credit card. This means that you can only spend on your credit card up to this limit. If you spend above the credit limit on your card, you will be charged an overlimit fee and the next month your minimum due will include any amount you have spent over your credit limit.

    Charge cards on the other hand do not have any credit limit or spending cap. You can spend up to any limit on the card as long you are able to repay the complete amount next month. If you fail to do so, you will be slapped with an expensive penalty.

    Interest Rate

    All credit cards charge an annual interest rate or EIR (Effective Interest Rate). The average interest rate charged on credit cards in Singapore range between 24% p.a. and 29% p.a. The interest rate is said to compound if you do not make timely repayments on your monthly statements. Banks also revise their interest rates every few years.

    Charge cards do not charge an interest rate because the balance needs to be paid in full every month. There is no concept of interest, minimum due requirement, over limit fee etc. associated with a charge card unlike a credit card.

    Interest Free Period

    Credit Cards offer an interest free period as a perk wherein you do not have to pay interest on your purchases for a fixed period of time if you have been making full outstanding payments on your monthly statements. Average interest free period for credit cards in Singapore for purchases are between 21 days and 30 days.

    As charge cards do not charge an interest, there is no interest free period associated with these cards.

    Balance Transfer

    Most credit cards in Singapore offer a balance transfer facility wherein you can transfer the balance from all your credit lines and other bill payments onto a single credit card and make 1 payment every month at a single rate of interest.

    You cannot transfer your balances onto a charge card because they do not offer a credit facility or charge an interest rate.

    Applying for a credit card is easier than applying for a charge card

    Not only are credit cards easier to apply for, they are also more readily available. Not all banks offer charge cards and not as many charge cards as credit cards. The eligibility criteria for credit cards are also more lenient when compared to charge cards. There are credit cards offered even to those who do not have an annual income but such applicants will not be eligible to apply for a charge card.

    Charge cards carry more risk because the balances must be paid in full and no form of credit can be obtained on them. Therefore, they are harder to get when compared to credit cards. Many charge cards tend to be “Invite-Only” cards wherein you cannot apply for them without having an invitation to do so or you have registered your interest with the card issuer and depending on various eligibility factors, your application may or may not be accepted.

    Charge cards have more exclusive benefits and privileges when compared to credit cards

    Charge cards offer more perks and exclusive privileges when compared to credit cards. For example, American Express offers a range of charge cards with privileges including accelerated Membership Rewards Programme, Exclusive savings with Zuji, extended warranty and purchase protection for purchases made using the charge cards.

    Which card is better?

    Now that you know the basic differences between charge cards and credit cards, which is better? The answer to that will depend on you because you have to see if your spending and repayment habits are better suited for a charge card or a credit card. If you are someone who pays full outstanding balances every month, does not really need a balance transfer facility and earn a decent income, a charge card might suit your lifestyle more than a credit card. On the other hand, if you can’t keep up with full payments every month, have a tendency to overspend and make use of the balance transfer facility to consolidate your expenses you should go for a credit card instead of a charge card.

    Though credit cards have a high interest rate when compared to other lines of credit, they are more understanding when you miss payments or do not pay the full amount. Charge cards on the other hand can become very expensive to manage if you continuously miss your payments or make late payments. 

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