What extra charges come with a credit card?
A credit card can be useful to build your credit score, protect your purchases, and give you some flexibility in your finances. However, when it comes to spending on a credit card, you won’t just be paying off what you spend. Depending on your agreement, there are a few other charges you could incur, such as:
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Interest
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Annual fees
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Balance transfer fees
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Cash withdrawal fees
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Foreign transaction fees
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Missed or late payment fees
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Over-limit fees
What’s the difference between credit card fees and interest charges?
Understanding the distinction between credit card fees and interest is important for managing your credit card effectively and avoiding unnecessary costs.
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Credit card fees are fixed charges that are typically one-time or periodic costs. They’re usually associated with specific services or actions related to your credit card.
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Credit card interest is the cost of borrowing money, usually shown as an annual percentage rate (APR). You only pay interest if you carry a balance into a new month.
Different types of credit card interest charges
Interest charges are applied when you borrow money on your credit card. These charges are summarised as an APR. You can use this to help you compare credit card offers – the higher the APR, the more you’ll pay on an outstanding balance. There are a few different types of interest rates that you should know about:
Purchase APR
This is the interest rate applied to purchases made with your credit card.
Balance Transfer APR
This interest rate applies to balances transferred from other credit cards.
Cash withdrawal APR
Cash withdrawals usually incur higher interest rates compared to purchase and balance transfer APRs. These are often around 25-30%.
What are the most common types of credit card fees?
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Annual fees |
Most credit cards don't have annual fees, making them a cost-effective option for many. However, cards that do charge annual fees are typically those offering purchase and reward benefits. The fees vary from product to product but are usually higher on the cards offering the most benefits. |
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Balance transfer fees |
These fees are charged when you move an existing balance from one credit card to another, often to get a lower interest rate. Usually, balance transfer fees are about 3-5% of the amount you transfer. |
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Cash withdrawal fees |
You should generally avoid withdrawing cash from a credit card. You’ll usually be charged between 3-5% of the amount you withdrew. |
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Foreign transaction fees |
There’s usually a fee for using your credit card abroad. These types of fees range from 1-3% of the transaction amount. |
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Missed or late payment fees |
Your credit card statement should tell you the date you need to pay your credit bill. If you pay your bill after the date agreed upon, you’ll likely be charged a late payment fee of around £12. Missed or late payments can affect your credit score and result in increased interest rates on future borrowing. |
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Over-limit fees |
Some providers charge an over-limit fee, and others just decline the transaction if it takes you over the limit. |
How to minimise credit card fees and charges
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Choose the right card for your needs. For example, if you’re not specifically looking for a card with rewards and benefits, opt for a normal one that is less likely to have an annual fee.
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Look for introductory offers where you can take advantage of 0% APR for a set period.
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Pay your balance off in full and on time each month. This means you won’t pay any interest at all.
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Set up a Direct Debit so that your bill is paid on time every month, avoiding late payment fees.
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Stay below your credit limit.
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Avoid withdrawing cash, as these come with high fees and immediate interest charges.
By using these tips, you can cut down on or even avoid many credit card fees and charges. This should help you save money and better manage your finances.
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Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.
Fiona Peake
Personal Finance Writer
Fiona is a personal finance writer with over 7 years’ experience writing for a broad range of industries before joining Ocean in 2021. She uses her wealth of experience to turn the overwhelming aspects of finance into articles that are easy to understand.
