charge card vs credit card

What Is a Charge Card and How Does It Differ from a Credit Card?

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Last updated on May 16, 2019 Views: 547 Comments: 0

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Canadians searching for a card to add to their wallets this year will notice that no two are identical, either in terms of the rewards and perks they offer, or in terms of their basic usage models. Similar to the nuances between debit and credit or unsecured and secured debt, the idea of a charge card vs credit card is also a crucial personal finance concept in Canada.

The biggest distinctions between credit and charge cards concern how the cardholder is able to mobilize the money provided by their bank, and how they repay it. Both are suitable for a particular type of consumer, and determining which is best for you is an exercise in comparing how charge cards and credit cards work at the most rudimentary level before examining your relevant financial habits.

What Are the Differences Between a Charge Card and a Credit Card?

The two main distinguishing factors in the battle of charge cards vs credit cards are fundamental differences in spending limits and repayment terms.

Everyone is familiar with the idea of a credit limit, which the banks assign new credit card holders as a way to limit the amount of money they can spend with the card each month. Charge cards have no such limit, allowing the cardholder to spend as much as they want.

That said, cardholders must repay the card issuer in full at the end of each month. If they don’t, they’ll be hit with extremely high interest charges and might lose cardmembership as well. Credit card holders, on the other hand, have the choice to only pay a monthly minimum on what they’ve spent, the full amount, or somewhere in-between. If they can’t pay the full amount of their charges at the end of a month, they can instead elect to repay over time, hopefully with modest interest charges.

Beyond spending limits and repayment terms, there are also a few more minor differences that consumers should also familiarize themselves with before making a decision in either direction.

Advantages of a Charge Card

The most obvious advantage of a charge card is that there’s no preset spending limit. You can use it to make large purchases or run up enormous monthly bills without its lender restricting you in any way, and this applies every month. They also might generally provide more lucrative rewards structures than credit cards, and can bestow some particularly high-value privileges and statuses to cardholders who travel or make purchases with certain brands.

Charge card issuers also make it clear that for these advantages, applicants are expected to practice financial responsibility (pay bills in full and on time). Cardholders who are looking to regulate their spending and learn financial discipline can use this pressure to their advantage, utilizing charge cards to only purchase things they can repay swiftly.

Disadvantages of a Charge Card

It’s great to have what is essentially an “unlimited credit limit” on your charge card, but note that some charge card issuers nonetheless request that cardholders who are about to spend very high sums first clear the purchase with the issuer. And it’s worthwhile to reiterate the primary disadvantage of a charge card: Commonly, failure to pay a monthly charge card bill in full will result in the termination of the charge card membership, and at the very least an exorbitant interest charge to the tune of 30% or more. Non-payment of a charge card bill may also result in a bigger dent to your credit score than if it occurred with a credit card.

And though charge cards might reward cardholders with lucrative rewards and features, it’s notable that many charge cards will often come with a commensurately steeper annual fee than their credit card counterparts. A final minor difference between these two card types is simply that credit cards are much more plentiful in the Canadian market, and people looking for charge cards will only have a small handful of issuers to turn to in Canada.

What Are the Best Charge Cards in Canada for 2019?

The best charge cards in Canada are primarily issued by American Express, which offers an array of charge card options at varying annual fee levels. Below are three of our favourites:

The Platinum Card American Express

The Platinum Card from American Express

Eligibility Criteria:
– Credit score required: 
– Min personal income required: N/A
– Annual fees: $699

The American Express Platinum card is a premium rewards card, and is perfect for cardholders who spend a lot of time (and money) on travel. Though it has one of the highest annual fees in the Canadian marketplace ($699), those familiar with the value of the card’s comprehensive and luxurious feature set will be undeterred by its price point. For example, new cardholders get a 50000-point bonus worth about $500 in travel or $350 in cash, plus a $200 travel credit every year. In the first year these two benefits alone cover the annual fee, but cardholders get more renewable value beyond that.

The Platinum card provides access to hundreds of VIP airport lounges around the world at no additional cost, and it earns a significant amount of Membership Rewards points for regular spending: 3 points per $1 spent on dining, 2 points per $1 spent on travel, and 1 point per $1 spent on all other eligible purchases. These points can be transferred to airline partners and other rewards programs (including Aeroplan), and cardholders will obtain automatic Gold status at network hotels. Add in strong travel insurance including emergency medical, trip cancellation and interruption, and the card is one of the most complete luxury travel cards in Canada.

Click here to learn more about the Platinum Card from American Express

American Express Gold Rewards Card

The American Express Gold Rewards Card

Eligibility Criteria:
– Credit score required: 
– Min personal income required: N/A
– Annual fees: $150

Those who can’t stomach the Platinum card’s sky-high annual fee, or who perhaps can’t justify it given their less frequent travel habits, can opt instead for the mid-tier Gold Rewards charge card from Amex. Though it has a reasonable annual fee of $150, the Gold card nonetheless offers a sizeable taste of luxury, including a 25000-point welcome bonus and a lucrative rewards earning model. Cardholders collect 2 Membership Rewards points for every $1 spent on travel and everyday purchases and 1 point per $1 spent everywhere else.

Gold cardholders also get hotel and rental car features, including car upgrades and a fee waiver for adding additional drivers at Hertz. Amex also supplies cardholders with a $100 hotel credit and complimentary room upgrade where available. Amex Membership Rewards points can be redeemed on airfare or hotels, and even rental cars and cash credits. Finally, it also includes insurance resembling the Platinum card, with emergency medical, trip interruption, flight delay, baggage and hotel or motel coverage.

Click here to learn more on the American Express Gold Rewards Card

American Express AeroplanPlus Platinum

The American Express AeroplanPlus Platinum Card

Eligibility Criteria:
– Credit score required: 
– Min personal income required: N/A
– Annual fees: $499

While the Gold and Platinum cards grant cardholders broadly useful perks for their travels, a more concentrated rewards model for fans of Air Canada is provided via the AeroplanPlus Platinum charge card by American Express. In the middle ground of annual fees (by charge card standards) at $499, cardholders get a welcome bonus of 40000 Aeroplan Miles, plus a yearly Partner Ticket allowing you to spend 15,000 of those miles on a ticket and then get a companion fare for free on the same itinerary. Aeroplan Miles are earned at a steady rate of 1.25 per $1 spent and then 1.5 Miles per $1 spent after spending $25,000 during the year. You can also earn Miles at double the rate at partner brands, allowing you to “double dip” and discount travel faster.

Luxury perks for Air Canada lovers include worldwide airport lounge access and priority check-in for Air Canada flights. You’ll also receive complimentary valet services at Toronto Pearson and discounts on airport parking as well. Platinum-tier insurance coverage protects cardholders when they’re out of their province, for emergency medical needs, trip interruption and cancellation, baggage and flight delay, and much more.

Click here to learn more on the American Express AeroplanPlus Platinum card

* This post was not sponsored. The views and opinions expressed in this review are purely my own.

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