Some credit cards and loans can come with higher fees than other forms of borrowing.
Late payment charges
If you make a payment on a credit card or loan after its due date or miss the payment altogether, you’ll usually have to pay a late payment charge.
This can also affect your credit score, meaning it could be harder to borrow money in the future.
Cost: This should be no more than £12. Any charge in excess of this is likely to be deemed unfair.
If you’re worried about forgetting payments, then consider setting up a Direct Debit to your lender or provider.
If you’re income varies from month to month, making manual payments might be a better way of ensuring you have enough money in your account to make the payment.
If you go over your agreed credit limit on your credit card, you’ll also have to pay a charge.
It could also affect your credit score and might lead to your credit limit being reduced.
Cost: This should be no more than £12. Any charge in excess of this is likely to be deemed unfair by the Financial Conduct Authority.
It’s important you know how much credit is left on your card each month – check your balance online or on the phone.
If your credit card company tries to take a payment via Direct Debit or a cheque, but you don’t have enough money to cover it you’ll be charged a returned payment fee.
Cost: up to £12
It’s important to make sure you know when your monthly repayment is due and have enough money in your account to cover it it. If you’re worried about not having enough money in your account, making manual payments might be the better option.
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Beware
Over two-thirds of people who made credit card cash withdrawals didn’t know how much it had cost them. Don’t be one of them!
Source: uSwitch.com
Using your credit card to withdraw money from a cash machine is a bad idea.
You’re often charged a percentage fee with a minimum level (usually £2 – £3) plus interest from the day you make the withdrawal.
Whereas spending on a credit card usually has an interest-free period if you repay in full at the end of each month.
The interest rate you’ll pay for cash will also be higher than the rate for spending.
Avoid withdrawing cash using your credit card. If you’re having difficulty paying your bills, talk to the companies and tell them your situation.
Some credit card companies charge you a fee for not using your card for a period of time.
This is known as a dormancy fee and it varies depending on the card company.
Cost: £2 – £20, depending on the card company.
Remember
Check the terms and conditions of your credit card agreement to see if this applies to you and cancel any cards you no longer use or switch to one that doesn’t charge a dormancy fee.
Using your credit card abroad can also be very expensive.
When you pay for something, a charge called a loading fee is added onto the exchange rate by your bank.
Once your bank adds this, your exchange rate won’t be so favourable.
The loading fee might not show up on your statement either, so you won’t even know you’re paying it unless you check your terms and conditions.
If you use your credit card to withdraw cash abroad, as well as the loading fee, you’ll usually pay an ATM fee which could be higher than in the UK, plus interest on the amount withdrawn straight away.
But costs for using your card abroad can vary, with some being cheaper than others.
Since January 2018, you can’t be charged extra by a retailer for using a credit card when making a purchase.
It’s important to complain to the trader if they do charge you more and ask for the charge to be refunded.
Is your household income getting squeezed?
If you’ve been charged more than £12 for late payment fees or going over your credit limit you can look to claim back the difference between what you were charged and the £12 figure as credit card providers cannot legally charge more You can go back six years and reclaim from current and old credit card providers.
For more information, see our guide Reclaiming unfair credit card charges
Cutting the cost of your borrowing
There are other ways you can cut your card and loan costs.