Difference Between a Credit Card & Charge CardEstimated reading time: 5 minutes
Difference Between Credit Card & Charge Card

Difference Between a Credit Card & Charge Card

Posted on Wednesday, November 6th, 2024 | By IndusInd Bank

If you are looking at plastic money for convenient payments and rewards, there are two options you can consider: credit cards and charge cards.

Both cards provide the convenience of making purchases without the needing to carry cash. However, while they may seem similar at first glance, they function differently. Understanding how credit card vs. charge card compare against each other is essential to choosing the right one based on your financial needs. 

What is a Credit Card?

  • A credit card allows users to borrow funds up to a pre-approved limit. More importantly, it gives cardholders the option to carry over the balance into future billing cycles. 
  • This means users can make purchases now and pay later, either in full or in smaller instalments. 
  • Credit cards incur interest if the balance is not fully repaid by the due date. 
  • Credit cards also offer various features, such as reward points, cashback, and the ability to convert large purchases into EMIs.
  • When you apply for credit card, make sure it aligns with your lifestyle and provides rewards suited to your spending habits, and provides rewards suited to your spending habits.

What is a Charge Card?

  • A charge card allows users to make purchases just as a credit card. However, with a charge card, the balance must be paid off in full at the end of each billing cycle.
  • Since balances must be paid in full each month, the card issuer levies no interest charges.
  • If you fail to repay the full amount by the due date, you may incur late fees and penalties. The issuer may even suspend your account.
  • Unlike a credit card, charge cards do not have a pre-set spending limit. However, the card issuer may impose limits based on spending habits, income, and creditworthiness. 
  • Charge cards offer great flexibility in spending. However, they require financial discipline, as failing to pay the balance on time can result in hefty penalties.
  • Charge cards are ideal for high-income individuals who can afford to clear their balances each month. 

Now that the basic distinction between a credit card vs a charge card is clear, let’s look at what separates the two. 

Key Differences Between Credit Cards & Charge Cards

Here are the key points of difference between charge cards and credit cards:

ParametersCredit CardsCharge Cards
Spending LimitsHave a pre-set spending limit. Exceeding this limit can lead to an over-limit fee. The cardholder must raise a request and get approval to increase the limit without incurring a fee.Do not have a pre-set spending limit. However, the issuer may impose limits in some cases. 
Repayment FlexibilityAllow users to pay the full balance or a portion of it. They can carry over the remaining balance to the next month. Users must pay the full balance at the end of each billing cycle. They cannot carry over the balance to the next cycle. Paying the bills late can lead to heavy penalties.
Interest RatesThe bank charges interest on any unpaid balance at the end of the billing cycle. Interest rates depend on the credit card type and the card issuer.Do not charge interest, as the balance must be paid in full every month. However, late payment fees can be high.
Annual FeesComparatively lower annual fees. In some cases, the fees can be waived based on spending patterns. Credit cards with no joining or annual fees are also available. Tend to have higher annual fees compared to credit cards. This is because of the premium services and benefits that come with the card.
Rewards and BenefitsCome with various rewards, such as cashback, travel perks, or shopping discounts. The reward structure varies on the type of card and the user’s spending habits.Tend to offer premium rewards and services, such as personalised concierge services.
SuitabilityIdeal for individuals who want flexible repayment and to earn rewards on purchases. Ideal for individuals with high spending power and who can pay off the balance in full each month. 
Credit ImpactCan help build your credit history and improve your credit score with responsible use. Do not impact your credit score with a credit limit. However, paying the bills on time is crucial to maintain a good credit standing.

Understanding the above differences between charge cards and credit cards can help you choose a card that best aligns with your needs and spending patterns. 

Also Read: What Happens When You Default on Credit Cards?

Conclusion

To sum up, in the credit card vs. charge card debate, the choice between the two depends on your financial habits and needs. If you are opting for a credit card, having the right banking partner is crucial. With IndusInd Bank, you can choose from a range of Credit Cards that cater to various lifestyle needs and offer unmatched benefits, rewards, and financial freedom! So, don’t wait, apply now for a Credit Card!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.

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