Calculating credit card costs
Credit cards can help you spread costs. But they come with fees and charges. Our guide explains more, including the fees to keep a look out for
Credit cards can be a useful tool to help you manage your money. But they don’t come without costs – in the form of interest charges and other add on fees. The amount you pay for your credit card borrowing will depend on the type of card you have - as well as how you use it. So ensure you understand how the different charges work before you use your card.
For example, if you clear your balance in full every month, you will avoid paying any interest on what you owe, whereas if you only make the minimum monthly repayments, interest charges can soon add up.
What credit card costs should I expect?
Here, we explain five credit card costs you need to be aware of when you get a credit card.
If you don’t clear your balance in full every month, you will be charged interest on what you owe, unless you have a card which has a 0% introductory rate on purchases.
The interest you’ll have to pay will depend on what card you have. But by way of a guide, typical standard credit card rates, known as theannual percentage rate (APR), are usually around 18% to 20%.
Our helpful credit card calculatorcan help you work out how long it will take you to pay back your card balance based on the amount you pay off each month and your card’s APR or rate. It can also show you how much it would cost you if you want to clear your balance by a certain date.
Be aware that if you take cash out of a cash machine on your credit card (which is known as a ‘cash advance’) you will usually be charged a much higher rate of interest, for exampleup to around 28%. Plus this interest will be charged from the moment you access the cash.
You could also be hit with a cash withdrawal fee. These fees can be up to 5% of the amount you have taken out of the ATM depending on your provider. So, it’s best to avoid withdrawing cash on your credit card.
Balance transfer fees
If you get a credit card to switch a balance from another, more expensive credit card, you’ll usually have to pay a balance transfer fee, of about 2% to 3%.
However, a number of providers now offer more competitive fees, and you’ll find that, if you go for a shorter interest-free offer, the fee might be lower.
Some credit cards, such as those offering cashback or other perks, will often charge an annual fee. The amount can vary widely, depending on the type of card and the benefits on offer.
Some cards will waive this fee for the first year, so it may be worth calculating before you apply how much it will cost you in the second year and beyond, and whether this outweighs the benefits.
Late payment and credit limit fees
If you don’t pay at least the minimum repayment each month, you’ll be charged a missed payment fee of around £12. This will show up as a ‘default charge’ on your bill and could also damage your credit score.
If you go over your credit limit, you can also be hit with another fee of around £12.
Fees for using your card on holiday
You’ll usually have to pay more to use your card when you’re abroad, and this includes withdrawing cash.
Most credit card providers charge an exchange rate transaction fee of around 2.5 to 3% each time you use your card abroad, plus an additional 3% if you withdraw cash.
If you plan to use your card a lot when you travelit’s worth looking for an overseas credit card which won’t charge you for spending abroad.
How can I keep my credit card costs down?
An effective way to keep your credit card costs down is to use your card responsibly. This means making payments on time and clearing your balance in full. By paying your balance in full every month, you won’t have to pay any interest on top of what you owe. If you don’t pay your balance in full, the interest charges can start to mount up and make your credit more costly.
It’s also important to make sure you’re making payments on time as you’ll be faced with a missed payment fee. Use your credit card sensibly and keep an eye on your credit limit. Going over your credit limit will also incur a charge.
Other ways to keep credit card costs low is by not using them to withdraw cash, use your debit card instead for that. Standard credit cards will usually charge you for using them abroad. Instead, avoid an unnecessary credit card cost by getting a travel credit card which are specifically designed to be used abroad.
How can I calculate my credit card costs?
Try using our credit card calculator to get an idea of how much your credit card will cost you based on the interest rate. With our credit calculator you can find out how much it will cost to pay off your credit cardas well as how long will it take to repay in full.
Can I get a low rate credit card?
If you’re looking to keep credit card costs down then a low rate card could be an option.Low rate cards are more commonly known as low-interest or low-APR credit cards. These cards are a good choice for you if you’re looking for a cheaper credit card as they offer low interest rates which help to keep your repayments manageable.
However it’s important to know that you might not get the advertised APR rate for a low-rate credit card. This is because when you apply for a low-rate card, the lender will base their decision on your credit rating and financial circumstances. So, you may not get as low a rate as you hoped.
You could be eligible for a zero per cent interest card – either for new purchases, to transfer an existing card balance or a combination of both. You’ll typically need a strong credit score to be accepted for a 0% card, but they can help with budgeting and give you some breathing space to pay off debt.
Other useful guides
Here at MoneySuperMarket, we have a range of useful guides to help you better understand credit cards:
Compare credit cards with MoneySuperMarket
If you’re looking to apply for a credit card, make sure you get the best card for your needs.
You can search our wide range of card deals from leading UK lenders. And searching won’t affect your credit score in any way. We’ll show you your chances of being accepted – and if you’re pre-approved for any cards.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this service. Instead we are usually paid a fee by the lenders, but the size of that payment doesn’t affect how we show products to customers.