When used sensibly, credit cards can be an incredibly convenient way to pay for products as they can spread the cost of a purchase and may even earn cashback. However, many people are unsure over many parts of credit card usage so we have compiled a guide to help inform those with questions.
What’s a rewards credit card?
Rewards cards are very similar to cashback cards, but offer rewards rather than cash. This is usually in the form of vouchers, loyalty points or discounts.
What’s a cashback card?
Cashback cards are cards on which you can earn money back as you spend, with this amount varying between issuers and products.
What’s a low APR credit card?
As you would expect given its name, low APR credit cards are cars with a lower APR than usual.
What’s a purchase credit card?
Purchase cards can offer long interest-free periods.
What’s a balance transfer card?
Balance transfer cards give you the opportunity to move existing debt to a new card, which usually charges a low interest rate. However, it does usually require a fee to be paid.
If you don’t pay off the debt by the end of the low-interest period then you may end up paying a much higher rate.
What’s the right credit card for me?
There is no clear answer to this question as it depends on what you need from a credit card.
Can I repay credit card debt early?
You can repay your credit card debt at any point.
Is it better to save or overpay a credit card?
Usually, you will pay a higher rate on credit card debt than you would receive from your savings, so it makes more sense to pay off debt first.
Is it cheaper to borrow with an overdraft or a loan?
Again, this depends on your circumstances but could be worth consideration. A lot of banks offer interest-free overdrafts that could meet your needs.
Is it cheaper to borrow with a loan or on a credit card?
This depends entirely on your own circumstances. Generally, loan rates tend to be lower than credit card rates, but it depends on how you manage your money.
What about interest-free credit cards?
When purchases are made using an interest-free credit card there will be no interest added onto the debt for an agreed period.
Can I borrow money for free?
The majority of credit cards come with an interest free period, during which you can essentially borrow money for free, as long as you pay your bills in full.
This will not apply to cash withdrawals.
What’s a soft search?
A soft search is a check to see which credit deals you’re most eligible for before applying. This kind of search will not impact your credit history.
Why are credit ratings important?
When you apply for a credit card a credit check will be carried out, with this deciding whether you get accepted and the interest rate offered.
What’s compound interest?
Compound interest is interest paid on interest. It can cost borrowers huge sums of money as it accumulates.
What does credit card APR mean?
APR stands for annual percentage rate and is used to calculate the cost of lending on financial products.
Due to the inclusion of charges, APR can be somewhat difficult to understand; the interest rate may be 14 per cent, but the APR could be 17 per cent as the fees would total another 3 per cent per annum.
You shouldn’t assume that a lower APR means a better deal, as lenders calculate interest differently and may have other fees.
There are two common types of APR, personal and representative. Representative APR tends to be used on products where the interest rate offered will be dependent on your credit score.
Personal APR is a rate that stays the same regardless of your credit score.
Are there any downsides to using a credit card?
If, like a large number of people, you don’t pay off your credit card debt in full each month you’ll have to pay interest on your debt. Interest rates on credit cards can be very high so you run the risk of your debt getting out of control.
Should you decide to use your credit card to withdraw cash you’ll be charged interest as soon as the money is withdrawn and there is usually a fee for withdrawal.
What’s chargeback protection?
Chargeback is a method of recovering your money if things go wrong on purchases made on debit cards and purchases totalling less than £100 on credit cards.
Are my purchases protected if I pay by credit card?
Usually your purchases will be protected as protection is given under the 1974 Consumer Credit Act. This act means that you are protected for purchases over £100.
