The Hidden Dangers Of Using Credit Card Cheques
Always on the lookout to find new and innovative ways to market credit card use in the UK, issuers have sent out thousands of unsolicited credit card cheques to UK credit cardholders over the past year to entice cardholders to make use of this seemingly useful system. However, before you start to use this system, you may want to give some thought to some of the perils of system which are not being generally advertised by the credit card companies.
What are credit card cheques?
If you have never even heard of credit card cheques before, you may want to get a little background information on how the system works. As you may know, if a retailer accepts a credit card payment, they’ll likely be subject to a credit card merchant fee. To avoid this, some UK retailers simply refuse to accept credit card payments – either on their website or in their store. To try and avoid this, while still trying to give cardholders the benefit of purchasing items from the retailer, UK credit card companies offer cardholders an alternative service, namely credit card cheques.
In essence UK credit card cheques work in a similar manner to normal bank cheques, so that you, as a consumer, make payments into the bank account of the retailer via your credit card and the amount of your purchase then appears on your next credit card statement.
Why is this such a bad thing?
On first inspection, credit card cheques would seem to be a very useful alternative to more traditional credit card purchases. However, some things that many users of this service are unaware of include:
- generally, the interest free period between purchase and credit card statement (of around 56 days) is waived – the transaction is considered a ‘cash’ transaction, whereby the interest starts to accrue from day 1
- the interest rate charged on the purchase is that of a cash withdrawal – not a product purchase
- importantly, so far as the credit card issuer is concerned, the transaction is a cash transaction and so you may not be covered under the insurance cover / warranty cover of the credit card if the product is latter found to be defective
- you are likely to be subject to a handling fee – sometimes for as much as 2% of the purchase price - for the transaction, in a similar manner to a cash withdrawal
So, what’s this all costing me?
In the last year alone, estimates are that UK credit card cheques are costing UK credit cardholders an additional £20 million in fees and costs! This may seem like a small amount when compared to the huge amounts of profits that UK credit card issuers make each year, but when you realize that the system is still in its infancy here in the UK you start to see that these numbers can only go one way – up!
Theft and credit card cheques
If you need any further reason why you should be giving very careful consideration as to why you should not be using credit card cheques, then the number of frauds currently taking place with stolen cheques in the post should be making the hairs on the back of your neck stand up! In short, sending large cheque via the postal system is always a risky business, doing this large scale is extremely foolish!
So, should I be using the system?
Without doubt there are benefits to the UK credit card cheque scheme – especially if you want to use the services of a retailer who won’t accept your credit card as payment. However, you should be giving very careful consideration as to whether or not this is the best system for you – especially given the lack of insurance / warranty cover – and if you receive an unsolicited UK credit card cheque from your UK credit card issuer, you most probably should think about contacting them with the view to not sending you any more unsolicited cheques, especially if you want to make sure you are not a victim of mail theft.
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