Summary of this article
Credit cards allow flexible repayment with rolling balances.
Charge cards need full repayment every billing cycle.
Fees differ, with charge cards offering premium perks.
Credit cards have become an integral part of everyday life and are used widely, from buying groceries to booking travel tickets and hotel stays, as well as for dining out, and even paying utility bills. They offer payment convenience, reward programs, and are favoured by all income classes. Charge cards, on the other hand, are less common. Being premium products, they call for strict payment discipline and are frequently accompanied by substantial annual fees, but offer exclusive and elite privileges in return.
How They Differ
Credit cardholders can pay off the total amount due or revolve the balance - pay a portion of the total due and pay the rest at the next billing cycle. Interest is charged on the amount due, usually between 1 per cent and 3.75 per cent per month, which would translate into some 12-45 per cent a year.
Charge cards, on the other hand, need the entire outstanding amount to be paid off by the due date. Balances cannot be carried forward. Late payment attracts late charges and can harm the credit history of the cardholder. While this adapts itself to financial control, it takes away the freedom offered with credit cards.
Credit Limits
Credit cards have a predetermined expenditure limit based on such considerations as the user's income level, credit history, and payment record. For instance, an employee may be assigned a limit of Rs 2 lakh in a month.
Charge cards are often promoted as having no prearranged limit. But this does mean unlimited spending. Issuers take income levels, payment histories, and past spending habits into account before accepting purchases. Large transactions may still be subject to pre-authorisation.
Interest And Fees
Interest charges on credit cards are usually charged per day in case of carry-forwards of balances. For example, the average annual rate of interest of 36 per cent is nearly 0.1 per cent a day. At an outstanding of Rs 10,000, that would translate to Rs 10 a day or roughly Rs 3,650 a year if not paid.
Charge cards do not incur interest as balances need to be settled in full monthly. They typically have greater annual fees, however. Premium charge cards in India can rise as high as Rs 60,000 per year, consistent with their positioning as luxury brands.
Rewards And Benefits
Credit cards are divided into classes, such as shopping, travel, and fuel, offering discounts and rewards on the basis of usage. Annual fees range from nil to a few thousand rupees.
Charge cards are focused on the higher-end segment. They offer services, such as concierge services, worldwide lounge access, and sophisticated travel coverage. Their high annual fees are rationalised by these VIP features.
Market Availability
Most banks and financial institutions in India issue credit cards. Charge cards, on the other hand, are rare and are only focused on high-income groups. Their market presence remains niche compared to credit cards. At present, American Express is the only lender which offers charge cards in India.
Essentially, credit and charge cards serve distinct purposes. Credit cards offer access and convenience, while charge cards focus on payment responsibility and high-quality services. Whether to use one or the other is determined by income, spending, and repayment capacity.
