There are several advantages to using a credit card when abroad. Choose the right one and it can be the cheapest way to spend.
They also tend to offer a level of protection on the goods or services you buy.
However, there are also some pitfalls to be aware of before you shop abroad with your plastic.
Credit Cards Abroad: The Good
Loss, Theft and Damage
Usually your credit card will have some sort of cover to protect you if your new purchases go missing or are broken. Levels of protection do vary though, so check the small print.
A Worldwide Service
Credit cards are accepted virtually everywhere in the world and even if you don’t speak the local language, the chances are, your plastic will.
Ease of Replacement
All card providers offer help lines if you lose your card whilst away, and a replacement can be sent to you wherever you are.
0% APR
Many cards will offer a “free” purchase window of 6-9 months for new customers, so take advantage of this on holiday and pay the money back at your leisure – before the time limit is up of course.
Credit Cards Aboard: The Bad
Foreign Currency Loading Fees
This is the charge that your credit card company will add to your bill if you use your card abroad. Usually it is 2.75% so a £200 purchase will actually cost you £205.50 instead.
Dynamic Currency Conversion Rate
This piece of jargon refers to whether or not your payment is in sterling or local currency. If, when presented with your bill, you choose to pay in sterling, then you could be charged a conversion rate by the restaurant or retailer (instead of the loading fee) which is far less favourable than what you might be charged in a bank.
For example, if your meal is 135 Euros and you decide to pay in sterling, at a fair exchange rate, you might pay (EUR135 / 1.154*) £116.97 but if the retailer decides to skew things in his or her favour, the same bill could be as much as 4% more – or in this example, £121.64 instead.
Unscrupulous outfits sometimes insist that you can only pay in sterling and you then sign the transaction slip confirming you have been given the choice so as to comply with terms and conditions laid out by the credit card companies. If you choose to pay in the local currency (which is the best idea), then you’ll be charged the loading fees by the credit card company.
Cash Withdrawals
Avoid using your credit card at foreign ATMs if at all possible. Credit card companies will generally charge you between 2.5% and 3% for this with a minimum withdrawal fee of £2.50 to £3. Then, to add insult to injury, cash is usually charged at a higher rate of interest than standard purchases and begins as soon as it comes out of the ATM.
Lastly, their final pound of flesh is taken if the card company operates a payment hierarchy system meaning that some providers leave payment of cash withdrawals till last so you will be paying interest for longer.
