Avoid high fees and hidden borrowing costs

Some credit cards and loans can come with higher fees than other forms of borrowing. Here’s what to watch out for and what to do if you think you’ve been charged unfairly.

• Late payment charges
• Charges for going over your credit limit
• Returned payment fee
• Cash withdrawal fees
• Dormancy fees
• Fees for paying with your credit card
• Using a credit card abroad
• Unfair credit card charges
• Cutting the cost of your 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: usually around £12.

• Make sure you never miss a payment by setting up a Direct Debit to your credit card provider or lender.

Charges for going over your credit limit

If you go over your agreed credit limit on your credit card, you’ll also have to pay a charge.

Cost: up to £12

• Ensure you know how much money is left on your credit card each month – check your balance online or on the phone.

Returned payment fee

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: £5–£12

• Make sure you have enough money to cover your repayments.

Cash withdrawal fees

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.

Cost: £2–£3 plus any interest charges

• Avoid withdrawing cash using your credit card. If you’re having difficulty paying your bills, talk to the companies and tell them your situation.

Dormancy fees

Some credit card companies actually charge you a fee for not using your card.

This is known as a dormancy fee and it varies depending on the card company.

Cost: £2–£20, depending on the card company

• 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.

Fees for paying with your credit card

Beware of credit card fees when you buy things, as they can greatly increase the cost of your purchase.

In many cases, the charge is only revealed during the closing stage of the payment process.

For example when you’re paying for a flight or event tickets online.

This makes it difficult to compare prices.

Cost: £2–£3, but can be more or a percentage of the cost of the purchase

• If the cost is under £100, consider using a debit card instead. If it’s over £100, bear in mind credit cards give you extra protection if there is a problem with your purchase.

Using a credit card abroad

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 and fees for withdrawing cash might be slightly higher.

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.

Unfair credit card charges

You might be able to get your current or old credit card provider to repay the last six years of late payment fees or charges for going beyond your limit.

In 2006 the Office of Fair Trading (OFT) ruled that these charges, of up to £35, were unfair.

The OFT ruling had no technical force to implement changes, but most card companies reduced their charges to this £12 level.

You can seek to reclaim back the difference between what you were charged and the £12 figure.

Cutting the cost of your borrowing

There are other ways you can cut your card and loan costs.

Read our guides below, for more tips on how to pay less for credit:

• Reduce your credit card and store card debt
  • How to reduce the cost of your personal loans

This article is provided by the Money Advice Service.