How do travel credit cards work?

Spending abroad can be expensive, but with a specialist type of plastic, you can cut the cost. So what are travel credit cards and how do they work?

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If you’re travelling abroad, you’ve probably got a lot to sort out. Between booking your flights and accommodation, and arranging travel insurance, there’s a lot to remember. While that’s all important, you’ll also want to take the right credit card with you.

So what is a travel credit card? And how do travel credit cards work? Here’s the lowdown.

What is a travel credit card?

A travel credit card is a type of credit card designed for paying for goods and services overseas. It can be a great idea to have one if you’re a frequent traveller, as many travel credit cards charge lower fees on foreign transactions and offer rewards for spending. You may have to pay an annual fee, but you’ll probably save overall if you’re a frequent traveller.

How do travel credit cards work?

Travel credit cards work like other types of rewards credit cards. When you put expenses on your card, you earn points or miles that can be redeemed for travel. The biggest difference is that there may be lower charges and fees for foreign transactions.

The process of applying for a travel credit card is similar to that of any other credit card. Lenders will perform a credit check before deciding to lend to you. To see which travel credit cards you will most likely be accepted for before applying, you can use a credit card eligibility checker.

What types of travel credit cards are there?

There are several different types of travel credit cards. The type that will suit you best depends on how you plan to use the card.

General travel cards

General travel credit cards often offer points for spending and bonus points for particular types of spending, like travel or dining. Your points can be spent on flights, holidays, hotels and car rental.

Airline credit cards

Airline credit cards offer air miles to cardholders. You can redeem these points on flights or airline upgrades. You may also get other perks, like the use of the airline’s VIP lounge at the airport or priority boarding.

Hotel credit cards

Hotel credit cards offer loyalty points at a particular hotel chain. You can use your points to stay for free or upgrade your room.

Premium travel cards

Premium travel cards usually have higher fees but offer more perks in return. They can be good value if you’re a frequent traveller and are likely to use all the rewards.

What fees and charges are there on travel cards?

Most lenders impose fees and charges on their travel credit card customers. That’s because it can be costly for the credit card provider to offer fee-free withdrawals. The reason is that they have to pay the owner of the foreign ATMs a fee every time you use them.

That said, some travel credit cards still won’t charge you a fee for making overseas cash withdrawals. Instead, they may cap the number of overseas fee-free withdrawals you can make.

Other providers may charge interest on cash withdrawals from the moment you take cash out of an ATM, even if you pay off your balance in full by the end of the month. To minimise this cost, you can pay off your balance early by logging into your credit card account while overseas.

It’s also possible that a travel credit card could come with an annual fee. Be sure to read the fine print to understand all fees you could be charged.

What are the benefits of travel cards?

The benefits of using a travel credit card vary depending on your lender, so you will need to check your terms and conditions. Some of the most common benefits include:

  • Good exchange rates: These are set by the wholesale currency market, so they usually don’t vary much between cards.
  • No non-sterling transaction fees: Most travel cards will offer no or a low foreign transaction fee. These fees can be around 3% on a standard credit card.
  • No cash withdrawal fees for using an ATM abroad: Some standard credit cards charge around 3%, so having no or a low withdrawal fee is a huge bonus.
  • No additional interest charges: Some standard cards charge interest from the moment you make an overseas withdrawal. Travel cards often have at least lower interest charges, if they have them at all.
  • Section 75 Protection: Any purchase costing more than £100 made on your travel credit card while you’re abroad will carry the same Section 75 protection as you’re used to at home.
  • Rewards: Most travel cards offer additional perks and rewards, like air miles, cashback or free hotel stays.

What should you look for when choosing a travel credit card?

When choosing a travel card, you’ll want to spend some time thinking about your personal spending habits to determine which is best for you.

Here are a few things to consider when comparing travel credit cards:

  • Sign-up bonuses: Some cards offer bonuses for new cardholders. Be on the lookout for these extra benefits, and be sure to weigh the cost of the offer before getting a card.
  • Fees: You’ll most likely want to look for a travel credit card that offers 0% interest on all overseas spending. That means you won’t be charged any non-sterling transaction fees when you spend overseas, as long as you clear the card in full by the end of the month. Also, look for a card that charges no cash withdrawal fees, and keep an eye out for annual fees.
  • Extra spending perks: If you’re a frequent traveller, then it may make sense to apply for a travel credit card that offers extra spending perks. Pick the type of card and reward scheme that is most suitable for your circumstances.

A travel credit card can be a great financial tool if you understand how it works. If you’re ready to get an overseas card, check out our travel credit cards in the UK to find the right one for you.