Credit card cheques
If you don’t have enough money in your account, credit card cheques might seem like a great option if the shop or tradesman doesn’t accept credit cards. However, they will actually leave you in an even worse financial position.
What are credit card cheques?
Credit card cheques are blank cheques that might be sent to you by your credit card provider.
They can be used as an alternative to the credit card itself.
However, using them will cost you a lot more than if you spent on a credit card.
How you get them
It used to be the case that credit card companies would send the cheques out directly to their customers.
However, credit card providers are now banned from sending out unsolicited credit card cheques. So, they will only send them to you if you explicitly ask for them.
Why using credit card cheques should be avoided
There are many reasons why you should avoid using credit cards.
High interest rates
The interest rates charged on credit card cheques can be extremely high – much higher than personal loans or standard credit cards because they’re treated as a cash withdrawal and not a purchase.
It can be a very expensive way to borrow, which means your debt could grow rapidly if it is not paid off in full straight away.
Credit card cheques are treated the same way as if you withdrew cash from your credit card via a cash machine.
This means you will be charged a handling fee of around 2.5% of the sum you spend with the cheque. So if you spend £1,000, that’s a fee of £25 that you’ll also have to pay.
No interest-free period
When using your credit card, if you always pay off your monthly bill in full, you can enjoy between 45 and 59 days of interest-free credit.
This is not the case with credit card cheques, as you’ll be charged interest from the moment the cheque is used until the entire balance is paid off.
No legal protection
Money spent using credit card cheques does not enjoy the same legal protection as money spent on a credit card.
When you buy something costing over £100 and up to £30,000 using a credit card, you can make a claim against the credit card company for a refund if:
- Goods fail to arrive
- Are damaged or faulty
- Don’t meet their description
But if you buy something using a credit card cheque you aren’t covered in the same way.
Can credit card cheques ever be useful?
Credit card cheques are only really useful if:
- You don’t have enough in your bank account
- You know you will be able to pay off the debt quickly and in full
- You want to pay someone who won’t accept card payments (such as emergency plumbers or electricians)
However, you should only use a credit card cheque if you absolutely have to, and make sure you repay it in full as soon as possible.
However, if you really cannot delay the purchase, then you’ll need to borrow.
For small purchases you should look at an interest-free credit card or authorised overdraft.
If you need to borrow in excess of £5,000, then a personal loan might be more appropriate.