The Benefit of Charge Cards vs Credit Cards

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All of us have heard the terms credit cards and charge cards and have also used it at some point in our lives. However, there are many people out there who still get confused and find it difficult to differentiate between the two. To avoid any further confusion, I thought I would clear the air so that you can decide which one is a better piece of plastic for your needs.

Credit Cards:

A credit card, as the name suggests, is a form of plastic money that has a specific credit limit attached to it that is defined by the company issuing the credit card. In simple terms, you borrow certain amount of money from the company. The credit limit for low-end credit cards can usually be in the range from 5,000 DHS to 7,000 DHS where as the limit for high-end cards can be as high as 60,000 DHS or more. Credit cards are considered to be the most expensive way of borrowing money. Despite this fact, a survey in UAE revealed that 77.3 percent of respondents owned credit cards. A credit card requires you to pay a portion of the borrowed money back to the company at the end of every month. You have the option of doing a part payment. However, this would incur an interest fee on the unpaid amount. One advantage of credit card is that there is no yearly fee attached to it. Another advantage is the flexibility that comes along with it. If you have a credit card, you don't need to have cash in hand in order to make any purchases. Many credit cards companies provide a host of benefits and privileges for the cardholder often in the form of cash backs, discounts, air miles, etc to lure them into

spending more. Some of the most common types of credit cards are MasterCard and Visa.

Charge Cards:

Charge cards may seem to be similar to a credit card but both function in a different way altogether. There is no credit limit associated with charge cards per se. A cardholder can borrow as much money as he/she needs, till the issuer company limits the borrowing. Charge cards have something what is known as an 'upper limit' on the maximum permissible charge. Unlike credit cards, the entire amount spend with a charge card must be paid in full at the end of every month. This enables the cardholder to keep a track of the balance amount and plan his/her expenses accordingly. There is no interest fee applicable on a charge card but there is a fixed penalty if the amount is not paid in full. Since there is no credit limit on charge cards, you might end up with a large balance on the card, which would be difficult to pay off. Charge cards offer some generous perks and rewards as compared to credit cards such as free roadside assistance, free food at airports, free hotel room upgrades, etc.

Credit Cards vs Charge Cards – At a glance:

Features  Credit Cards  Charge Cards

Credit facility

Card holder has the option of making a minimum payment on the entire amount.

 No credit facility available, so the card holder has to pay the entire amount in full every month.

Credit limitA fixed credit limit is set for every card holder.

No limit on the borrowing.

InterestInterest rate is charged at the end of every month on the unpaid amount.

No interest is charged as entire amount is repaid every month.

FlexibilityLarge variety of card offerings including cards that give cash back or rewards.

Comparatively smaller range of products but provides better rewards and benefits such as companion flights on airlines, free hotel room upgrades, etc

Annual feesGenerally have no annual fee because of the interest income.

Generally have an annual fee because of the lack of interest income for the company.

Which one is better?

Both credit cards and charge cards have distinct advantages and disadvantages and which card is beneficial for an individual would completely depend on type of usage. For instance, if someone has a strong stance of paying off the amount in a timely manner, a charge card can prove to be more useful, but someone with limited spending capacity might do better with a credit card.

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