Are you lost in the credit card jungle?

//Are you lost in the credit card jungle?

Idea in short

  • In Germany, there are several types of cards that you can use for payments.
  • The services they can be used for and the intended scope of use broadly differ.
  • Compare any overheads or fees when choosing among the various card types.

Whoever wants to book a journey, a rental car or a hotel over the Internet, usually requires a credit card. This is convenient, but can be expensive afterwards, if the card does not suit the needs of the owner. Cash is still king, but plastic cards are increasingly becoming popular. Today, one in three Germans pay with a card, says a representative survey of the Institute for Demoscopy (Allenbach). But, what is hidden behind the terms – debit, prepaid, charge or credit card?

If you're in Germany, which cards do you own / use?

Credit Card

It is considered the real credit card and is also known as a revolving card. Despite its name, few Germans use the credit card as their credit card. With a credit card, a loan is literally guaranteed. This means that all card payments and cash withdrawals within the agreed credit card limit will be charged monthly. Credit cards are usually issued only to customers who are in permanent employment with a high income and have a very good credit rating. If you’re planning to get a real loan with a credit card, the loans are often very expensive, so customers should think about other types of loans.

ADVANTAGES DISADVANTAGES
You can borrow money from the bank in a timely and uncomplicated manner. In addition, there is often the possibility to claim a partial repayment. There is a lot to look out for, because there are bonus programs that can be worthwhile: For shopping fans and frequent travelers who use their card to accumulate high turnover in the euro zone, for example, credit cards with a bonus program are suitable. For example, business travelers are credited 1 point in the Miles & More bonus program for 1 euro turnover. These points can later be converted, for example, into free flights or upgrades. These loans are usually associated with high interest rates. The Stiftung Warentest even explicitly warns against the credit card: Here, unlike charge and debit card, only a partial amount from the account will be debited – about only 5 to 25% of the amount actually due. You then have to pay loan interest for the amount you do not settle. With every additional booking via the card, this loan amount increases immediately. With monthly billing, one can quickly lose track of his / her expenses and get into debt. Anyone who already has such a card should try to balance out all the totals at the end of the month. Usually, it is easy to repay more than the contractually agreed monthly installment.

Charge-Card

It is the most widespread card in Germany and is usually simply referred to as a credit card. In Germany, the providers Visa and Mastercard dominate for this card segment. The card offers a credit line without the option of installment. Instead, every month, an invoice is created for the outstanding sum that the customer has to reconcile immediately.

ADVANTAGES DISADVANTAGES
Usually, there are no loan interests during the payment deferral period. Beyond the payment service, some providers also offer extras, such as free insurance or discounts. The charge card, like the credit card, is accepted as a means of payment almost anywhere in the world. It is suitable for European travelers and occasional shopping on the Internet. If you travel a lot and shop online, you can travel with a classic credit card. There is no installment. And on long-haul trips, customers pay for some foreign currency exchange or ATM pick-up on some credit cards. For example, anyone who draws money with the card in the USA, Thailand or North Africa has to pay five percent. A comparison of the transaction costs and exchange rates is worthwhile: Some card providers charge no fees for currency exchange.

Debit card

As with a debit card (debit card, Maestro, V-Pay) the debit credit card debits all card transactions directly from the current account of the credit card holder. There is no extra credit card limit, so no credit from the bank.

ADVANTAGES DISADVANTAGES
You have a good overview of your expenses. The debit card is only partially suitable for people who like to travel and often times, on their own. Debit credit cards are not usually accepted as security when renting a rental car or booking a hotel room. The reason for this is the direct debit, which is a problem when depositing a security using a card. So, no amounts can be blocked, as is possible with credit and charge credit cards. However, if it is a Visa or Maestro debit card, there is a virtual disposition framework and the card is still widely recognised.

Prepaid Card – for teenagers and freelancers

This card does not grant any credit. It is only operational if you pre-charge the card with the required amount. Payments are debited until the credits are used up.

ADVANTAGES DISADVANTAGES
The prepaid card is ideal for children and adolescents traveling abroad. Parents can load money from home at home, if the credit is not enough. Even for freelancers and self-employed, who often do not get a classic credit card, because the provider requires a regular income, this is practical. The term prepaid is deceptive because the customer does not expect that he can slip into debt. In fact, some banks charge annual fees, which can become expensive. So, the consumers should enquire about such fees at their bank. In addition, some prepaid cards charge an inactivity fee, wherein the customer must pay if the card remains unused for too long.

Summary

  • The most popular types of cards are credit, charge, debit and pre-paid cards.
  • Based on the intended purpose, some cards offer more benefits over the others.
  • Check for additional overheads and charges you may incur before choosing or using a specific card.
By |2018-09-23T16:37:58+00:00September 23rd, 2018|Assorted|

About the Author:

Mithun Sridharan
I am Mithun Sridharan, Managing Partner & Co-founder of INTRVU, where I run the Career Services track. I'm also responsible for strategy and platforms at INTRVU. An Engineer by education and a Management Consultant by passion, I lead the Digital & Data Practise for Germany, Austria and Switzerland at Sapient Consulting, where advise clients in the Financial Services industry. I hold an MBA from the European School of Management & Technology (ESMT) Berlin and a Master of Science in Digital Communications from Christian Albrechts University of Kiel. I also run Think Insights, a blog on Management Consulting and serve as the Frankfurt Chapter Lead for The Linux Foundation since 2016. I enjoy reading business books & magazines (Economist, Wired, Harvard Business Review, McKinsey Quarterly, BCG Insights, etc.), listening to podcasts (TED Talks, David Ramsey Show, a16z, Tim Ferriss Show, etc.), playing golf and watching history documentaries. I am based in Heidelberg, Germany.
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