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Credit Card Terms Explained

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Credit Card Jargon

Navigating the many terms used to describe the features and definitions by credit cards companies can a be a little confusing. In this article we will attempt to clear up any confusion.

Something quite satisfying about receiving a new credit card in the post from your bank. Another card we can go to town on. But before you go spending you must understand what it means to have a credit card.

Applying for all types of credit cards may not be the most sensible approach. There are so many different types of credit cards out there from so many different providers and going for the one with the lowest rate introductory rate may not always be the best.

We hope that this article will help to make sense of all the different terms used by credit card providers.

Credit Card Definitions

APR

Annual Percentage Rate is a number that is listed on any financial product. This is the rate at which you will be charged interest if you do not settle the credit card balance at the end of each month.

When you take out a payday loan, or any type of loan for that matter you will always see the APR shown on the marketing material.

Some credit card and Online Payday lenders will show the APR as introductory meaning that the APR shown may only be available to those with very good credit ratings. This also applies to the term representative APR.

Representative APR means that this is the rate which 51% of applicants would be offered the other 49% would not get that rate, some may get lower while others may get higher.

So, if you do not get the introductory rate it is most likely that your credit score could do with a little work to bring it up to scratch.

We have written articles on how to improve your credit ratings we suggest a quick read to get you on the right track and you’ll be in a better position when applying for loans in the future.

The Annual Fee

In the search to get more people signed up to their credit cards many companies offer bonuses and perks such as air miles, free insurance, points for shopping to name a few. To be eligible for these perks some card companies may charge an annual fee.

If you think that you will need those air-miles then it may be worth signing up for these types of cards. If you never step foot on a plane, then it might not be worth the additional expense.

Using your credit card for shopping is also a great way to build up points to redeem for various vouchers. For instance, Amazon have a credit card offering which allows you to accumulate points which you can exchange for Amazon vouchers. Although you are required to spend a fair amount to get a £10 voucher. Last time I checked Amazon were awarding 3 points for every pound spent. You needed 1,000 points to get a £10 voucher,

Balance Transfer to or from your Credit Card

There are always offers from various credit card companies which allow you to transfer your balance from your existing card to their card and charge you 0% interest for a period.

Some credit card companies will give you up to 12 month or 24 months 0% on balance transfers.

Some people will use these types of credit cards to payoff their payday loans and pay no interest on the balance.

Always be on the look out for new card deals that offer great perks like these. Although there are some things about balance transfers you need to know.

  1. Some credit card companies will charge a fee for transferring the balance
  2. Do not apply for more than 1 new credit card every 3 months, ideally 6 months.
  3. Pay off your entire balance at the end of each month if you can

When you transfer a balance from one credit card to another the fee you may be charge will be in proportion of the balance being transferred.

Interest-Free Period

Interest-free period is the time between making a purchase and your statement date on which payment is due. The interest-free period depends on the card provider. Each credit card provider will have a different interest free period some are 30 days others will be up to 24 months if not more.

These interest free periods are longer than most short-term loans. When considering whether you ought to take out a short-term loan you might want to consider using your credit card instead if possible if it has an interest free period.

Minimum Payment

When it comes time to pay your credit card bill at the end of each month you will need to make at least the minimum monthly payment. The minimum monthly payment is generally around 3% of the balance or £5, which ever is greater.

If you fail to make the minimum monthly payment you will most likely be charged additional fees by the company

Beware of Cash Withdrawal

This is the one thing you most definitely do not want to do with your credit card. Never withdraw cash using your credit card. You will be charged a much higher rate of interest for the privilege which is charged when the cash is taken out rather than at the end of the month on the statement date. Also, most of the time there will also be a cash withdrawal fee.

Credit Limit

When you are issued your credit card the card company will put a ceiling on how much you are able to spend each month with the credit card.

The credit limit is set based on your credit history, your affordability in the sense that they will look at your current outgoings and other loan commitments.

When the card is first issued it is normal for the credit limit to be set quite low from your perspective. The credit card company want to see how you do with a lower credit limit before lifting it.

Some credit card companies allow you to spend beyond your credit limit although not many. Always check if your credit card allows you to exceed your credit limit. You may want to keep an eye on this as going over your credit limit would cost you more.

Using your card abroad

If you can avoid it, do not use your credit card abroad. This will be more expensive, and you will be charged for using it in another country. Also do not withdraw cash while you are there. There will be a fee charged for currency conversion.

 

Debt management agencies are regulated by The Financial Conduct Authority

Many people in the U.K struggle with debts and many do not know how to start to repay them speaking to a debt advisor is one of the best things you will do along with taking action yourself by speaking directly with your creditors.

https://www.nationaldebtline.org/ and https://www.moneyadviceservice.org.uk

You should always seek professional advice when handling debt problems. Cashute are not licensed debt advisers and any information contained in this article should not be taken as legal advice. It is your Responsibility to seek out correct legal advice

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk