Credit card cheques have long been controversial – while they may seem like a good way to get cash in an emergency, or to pay for something when you can’t use your credit card, they are far more expensive than using a card and provide less protection if something goes wrong.
Read the uSwitch guide for everything you need to know about credit card cheques.
What are credit card cheques?
Credit card cheques are blank cheques that can be used as an alternative to using your credit card. Credit card companies used to send out millions of credit card cheques each year, though major credit card companies such as MBNA have begun moving away from them.
Why are credit card cheques controversial?
Credit card cheques have come in for criticism for a long time, primarily because many people are not aware that they can be far more expensive than using a credit card. Some 86% of credit card customers who use credit card cheques (1.5 million people) are unsure of what the fees charged on them really are.
Credit card cheques are treated as if you were withdrawing cash on your credit card and you will be charged handling fees of around 2.5 per cent of the value of the cheque – so for example on a cheque of £1,000 a £25 fee would be charged.
In addition, when you pay by credit card cheque, interest is normally charged from the day the cheque was used – unlike credit cards where you will usually have up to 56 days before you start paying interest on your balance. Plus, because of order of payment, you may not be able to pay off this more expensive borrowing until debt charged at cheaper rate of APR is paid off.
In 2008, 280 million credit card cheques were issued, and 3.2 million were used at a total value of £3.6 billion. The average APR on these cheques is 26.71% – almost 10% more than the average purchase APR, so the average cheque worth £1,141 amasses charges and interest costing a shocking £178.56 over the course of 12 months.
Purchases made with a credit card cheque also don’t get the same protection as those made with a credit card. Section 75 of the Consumer Credit Act (S.75) makes credit card companies jointly liable with retailers for purchases of more than £100 and less than £30,000 if there is a breach of contract or misrepresentation, for example, if goods are not delivered, or not as they were described.
Unsolicited credit card cheques (ones where you did not ask for them to be sent to you) have been banned.