What Are Charge Cards? Consequences of Failure to Repay
5 min read
A charge card is like a credit card without the option to pay you balances off over time. With a charge card, you must pay the entire balance in full every month.
Charge cards provide all the benefit of a credit card-convenience, rewards, fraud and purchase protection, etc. Without the freely available opportunity to overspend and go into debt.
Charge cards are similar to credit cards except they have no revolving credit line. Users of charge cards can use them to pay for purchases just like regular credit cards. The card issuer extends a line of credit but this only given for set period of time. A charge card is meant to be paid off in full every month.
Charge cards are the least well known e-payment methods. Like credit cards, they allow consumers to instantly borrow money to make day to day purchases, often come with reward points or extra like concierge services and allow users to keep tabs on their spending.
Charge cards are the least well known e-payment methods. Like credit cards, they allow consumers to instantly borrow money to make day to day purchases, often come with reward point or extras like concierge services and allow users to keep tabs on their spending.
Charge cards do not have credit limits, so theoretically you can charge as much as you want, until the issuer decides enough is enough. That’s because, despite the lack of a credit limit, charge cards do have what is referred to as a shadow limit or the upper boundary of your capacity to charge.
Charge cards generally have annual fees because of the lack of interest income for the issuer. If the monthly charge card payment isn’t made in full, cardholders face hefty late fees and their cards may be cancelled.
With a charge card, you are granted more purchasing power with no pre-set spending limit. While your spending is not unlimited, your purchases are approved based on a variety of factors, including your credit record, account history and personal resources. Proof of resources and security may also be required.
However, users have to be careful about how much they spend. Though there’s no pre-set limit, their purchases will be monitored, and if they keep racking up huge expenses, their card could be blocked by the issuer if it believes that the user does not have the capacity to repay.
Charge cards provide rewards, benefits, keep tab on spending, etc.
Rewards:
The charge cards provide a way to obtain good rewards-typically cash back or rewarded points- in exchange for spending. For example, American Express Gold Charge Card reward 1 point for every Rs 50 spent. All of the currently available charge cards also offer benefits very between providers but expect to find pretty much anything, from cut price car insurance to golf club membership.
Benefits:
Other benefits, especially insurance benefits, are also common. For example: purchase protection, extended warranty cover, personal travel accident cover, travel inconvenience and emergency card replacement etc.
Keep Tabs on Spending:
They allow users to easily monitor spending without having to guess how much they will need in advance. Some charge cards are specifically aimed at at business people that need a way of paying for expenses incurred on company trips. The cards have a dual benefit in this case: companies can keep tabs on what their employees are spending; and employees can enjoy numerous corporate related benefits.
The Caveat of Charge Card:
It is one of the biggest benefits of charge card. You Cannot rollover the balance. This ensures that, unlike in case of a credit card, you cannot be tempted to keep postponing the payment and so, end up with a huge bill after a few months because of the high interest rate. No matter how big the bill of your charge card, you will have no choice but to pay it off.
No Interest Rates:
There are no advertised interest rates with charge cards. As long as the cardholder pays back the balance in full every month, they do not have to pay interest. However, if cardholders fail to clear their monthly balance, they will need to pay a late payment fee.
Consequences of Failure to Repay:-
The highest potential cost of these cards, and certainly one of the biggest risks, are the high fee which accompany any failure to repay at the end of the month. Unlike credit cards, charge cards are typically issued without a credit limit. The responsibility is on the cardholder to ensure that, in any given month, they do not spend beyond their means.
Thus, charge cards are useful for those who want avoid stringing repayments out over a long period of time but are bad for those who have a history of struggling to meet payments.
Advantages of Charge Cards:-
Following are the advantage of a charge card:-
- Charge cards are unlikely to lead to card debt problems as they need to be paid off in full every month.
- Many users find it easier to budget responsibly with a charge card as they are expected to pay back what they owe on a monthly basis and cannot borrow for extended periods.
- This kind of card may not be given a set credit limit making it easier for cardholders to buy expensive items as they need to.
- Most cards come with additional rewards, discount schemes or perks for their users such as club services and various insurance plans.
Disadvantages of Charge Cards:-
Following are the disadvantages of a Charge Cards:
- Some users find it hard to stick with the program and may end up spending more than they can afford to pay off.
- Charge cards are usually reserved for individual with a good\high credit rating.
- Some of the premium cards with the best deals cannot be applied for and are given out on an invitation only basis.
- These products can charge high annual fees and additional charges for some types of card use.
- Not paying off what has been spent every month can lead to the addition of late payment charges or cancellations.
In India, American Express Charge Cards are a unique offering and the perfect choice for great service with fantastic rewards. They provide flexibility of no pre-set spending limit and no interest charges as you pay the balance in full every month. Your Charge Card will take into consideration your spending patterns, payment behavior and automatically keeps adjusting your spending level.
