Difference Between Payment Card and Credit Card (and Why It Matters)
If you’ve heard the phrase “payment card” and thought it was referring to a credit card, this is understandable as the terms are often used interchangeably. However, unlike a credit card, a payment card is a completely different product that does not charge a credit limit or interest. Here’s a more detailed look at the difference between the two.
What is a payment card?
Payment cards are less and less common, but they have some advantages and disadvantages compared to credit cards:
- There is no spending limit , which means you don’t have to worry about your card being rejected. Obviously, this can be an advantage if you need to make large purchases on a regular basis, which is why this card is popular with business owners or the self-employed.
- You must pay your balance every month , otherwise you will be charged heavy late fees. If you incur too many late fees, your card may be suspended or canceled.
- No interest is charged. The downside of paying off your payment card balance every month is that there really isn’t any long-term debt, so no interest is charged as with credit cards. This is great for avoiding big debt, but you lose some flexibility in paying off a large purchase in a matter of months instead of just four weeks.
- High Annual Fees: Because lenders cannot make money from interest payments with payment cards, they make up for lost income by charging annual fees that can cost hundreds of dollars. In contrast, many credit cards do not charge an annual fee at all, so you do pay for higher credit limits for larger purchases.
Should I use a payment card?
It really depends on whether you make regular 5-digit purchases from time to time, as most credit cards already offer fairly high limits for most borrowers. Plus, you’ll need a solid cash flow so you can pay for these purchases every month (this is another reason debit cards are good for small business owners).
If you are already paying your monthly bill no matter what and want unlimited spending, then a payment card might be a good option for you. To learn about some of the best available payment cards, read this publication in Wallethub .