American Express’s business card portfolio has been dominated by charge cards, with no APRs or purchase rates in sight – until now. The financial giant of the credit card world has released a new business card – the British Airways American Express Accelerating Business Card – that is a credit card. Yep, a credit card, not a charge card.
This change of direction from American Express got us thinking: what is the real difference between a charge card and a credit card? And, when it comes to business, which suits your needs best?
First things first, a business charge card is pretty much the same as a personal charge card in the way it works. It allows users to make purchases which can be paid at a later time. However, the full balance must be paid off at the end of every month as this isn’t a borrowing facility. If the balance isn’t paid off, the cardholder can face heavy fees and potentially have their account closed.
Meanwhile, a credit card allows users to make purchases on ‘credit’. It is essentially a quick, small loan. Credit card providers usually prefer borrowers to pay at least the minimum payment amount in their monthly statement, but balances can be carried forward on a credit card. The main difference is that unpaid balances accrue interest charges, unless the card has some sort of interest-free introductory offer. But even then, the card will move to its standard rate once the introductory period ends. So credit cards give more flexibility in terms of payments, but you could then run the risk of falling into an interest-rate black hole.
As with anything, what is best for your business may not necessarily be the best for someone else’s business. Here are a few points to consider if you are unsure whether to go charge card or credit card.
Charge cards are best suited to users that have the means to pay off their balance every month. If you need a card just to help ease cash flow on a monthly basis, or to consolidate business spending in one place, then a charge card can achieve that for you.
Another significant benefit of a charge card is that there is no pre-set spending limit, so you are not constrained like you are with a credit card. As a result, if you are a business that needs to make big purchases, you needn’t be worried about maxing out.
As a business, you are likely to have a good handle on your income and outgoings and already have a budget in place. Therefore, managing a charge card and the requirement to pay off your balance in full each month could be possible. However, it is important to note that the penalties are severe if you fail to make your payments on time.
On the flip side, a credit card can take the pressure off. Yes, it is a good idea to pay off your credit card balance in full each month, but if for any reason you can’t manage it, the balance can remain on your card.
Meanwhile, there are not many providers in the UK that offer a business charge card – American Express being one of the few – but there are several that have a business credit card product. As a result, you could find more competitive offers in terms of rewards, fees and management solutions if you go down the credit card route.
Before making a decision, it is always worth checking out some comparison sites like MyWalletHero for some helpful guidance and the low down on what different cards, whether they are charge or credit cards, have to offer.
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