Credit card cheques – the good, bad and ugly

cash machine

You may have received some credit card cheques with your last credit card statement recently. Is it sensible to use this unsolicited forms of payment? We look at the pros and cons in this article.

A credit card cheque works in the same way as a normal cheque issued against your current account in that it can be used to pay for goods and services, particularly where credit cards are not taken.

You can also use credit card cheques to transfer a balance to your credit card, by writing a cheque to pay off one card so that the balance is then transferred to your other card.

You can normally transfer up to 95% of your available credit limit in this way.

On the face of it, credit card cheques sound like an excellent way of paying for things, however you must be aware of some major disadvantages when writing a credit card cheque.

High interest rates

The most important disadvantage is that interest rates for credit card cheques are often far higher than for normally usage of your credit card.

For example, Barclaycard charges 14.9pc APR for normal purchases with its Platinum credit card, but charges 27.9pc for use of credit card cheques.

No Interest free periods

One of the key benefits of using a credit card is the interest free period between a purchase and the time that you have to settle your credit card bill.

Interest free periods are often up to 56 days and are an efficient means of budgeting your payments and purchases with you credit cards.

Credit card cheques, however, are treated as cash advances by the banks and therefore interest is payable from the date of using a cheque right up to the time that the transaction amount is paid off.

This lack of an interest free period can add considerably to the costs of using these cheques.

High Handling fees

You should also be aware of another hidden cost of using credit card cheques.

In addition to the high rates of interest payable, there will also be a handling fee charged. This is often 2.5pc of the transaction amount, but MBNA, for example, charges 3 percent.

So if you write a credit card cheque for £1,000, you will be paying a handling fee of at least £25.

No consumer protection

Another benefit of using a credit card for purchases is that there is often enhanced warranties and consumer protection provided by the credit card company under the terms of the Consumer Credit Act 1974.

Booking a holiday with your credit card, for example, often provides additional travel insurance. However credit card cheque transactions are not covered by these enhanced consumer protection benefits.

As banks deem these payments by cheque to be cash transactions, they do not offer the same consumer benefits, which is a major disadvantage in using credit card cheques.

Other disadvantages

If there are not already enough problems in using credit card cheques, consider these additional disadvantages:

  • You cannot stop a credit card cheque
  • Credit card cheques cannot be guaranteed
  • There are minimum handling fees of at least £2.50
  • Additional charges apply if you have breached the terms of your agreement with the credit card company

You can stop your card company sending cheques

Since March this year, credit card companies have to allow you to opt out of them sending you credit card cheques.

You either have to write to your credit card company (the address will be on the cheque somewhere) or to phone them to say that you no longer want to receive their cheques.

Opting out is particularly important if you are already close to your credit limit or are experiencing difficult with credit problems.

Are credit card cheques a good thing?

In a word – no. If your credit card company keep sending cheques to you then contact them to opt out as soon as possible.

In the meantime there is a good place for them – in the shredder.

Do not throw them out with the rubbish or paper collection as they could easily be used by someone else at considerable cost to you.

Be sensible, put these credit card cheques straight into the shredder. Do not be tempted to use them.

MoneyHighStreet Staff
MoneyHighStreet Staff

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