Travel Credit Cards

Travel credit cards explained

What is a travel credit card?

Travel credit cards can be a relatively cheap form of spending when you’re abroad as they don’t charge any fees (or minimal fees) for foreign transactions.

This is in contrast to most standard credit cards and debit cards which can charge hefty non-sterling transaction fees for spending outside the UK.

How do travel credit cards work?

You can use a travel credit card in the same way as any other credit card to pay for hotels, restaurants and holiday gifts, for example, when you’re travelling abroad. You can use these cards to purchase from foreign websites too.

The card provider will convert the foreign currency to pounds at Visa’s, Mastercard’s or American Express’s standard exchange rate, depending on your card.

Some of the top travel credit cards may offer other perks such as rewards or cashback on your spending, while some may offer a limited 0% interest period.

However, while specialist travel credit cards may not charge any fees abroad, interest charges still apply, as with a standard credit card.

Assuming your card doesn’t offer a 0% interest period, you will be charged interest on your credit card balance unless you pay it off in full each month.

Ideally, you should aim to clear your card balance in full, otherwise the interest charges could outweigh the benefits of using a travel credit card.

But, even if you can’t pay off your card, it’s crucial to make at least the minimum payment each month (and stay within the agreed credit limit) to avoid any penalty charges.

What are some potential fees to consider when using a travel credit card abroad?

While the best credit cards for travelling may not apply any additional charges for spending overseas, it’s worth checking the small print for any limits or restrictions.

For example, many credit cards charge a sizeable fee if you use them to withdraw cash. Furthermore, interest is often charged from the time of the withdrawal, instead of at the end of the month like on standard purchases, so interest charges could quickly pile up even if you pay off your balance every month.

There are some travel cards that won’t charge a fee for cash withdrawals, but it’s still worth doublechecking if the ATM itself charges a fee.

Do I need a credit check for a travel credit card?

When you apply for a travel credit card, the provider will need to run a hard credit check. This is because travel credit cards are a form of borrowing, just like any other credit card.

Providers will assess your credit file and run affordability checks to decide whether to approve your application for a travel credit card and, if successful, what interest rate to offer you.

Because hard credit checks appear on your credit history and too many checks in a short space of time could affect your score, you should only apply for a card if you’re confident of approval.

What should you consider when using a travel credit card abroad?

When you use a travel credit card for your overseas spending, it’s worth thinking about:

• any fees, including transaction fees, currency conversion fees and charges for cash withdrawals
• any cashback or reward schemes on offer
• the exchange rate
• whether you pay in the local currency or sterling
• your credit limit, and any other terms of the credit card.

As with any credit card, you need to consider the amount of debt you build up on a travel credit card and make sure you don’t spend more than you can afford. If you don’t clear your balance in full before interest charges apply, a credit card could be an expensive way to spend when abroad.

See our chart above to compare travel credit cards and their features to help you find the right card for your requirements.

How can you avoid credit card interest on holiday?

The key to avoiding interest on your credit card is to not overspend while you’re on holiday. This means you will be able to pay off your credit card balance in full before interest charges apply.

If, for some reason, you spend more than you can afford to pay off, you could consider switching the debt over to a 0% balance transfer credit card. This could help you avoid any interest charges (as long as you pay off your card before the end of the 0% period and meet all the necessary terms), although you may have to pay a balance transfer fee.

Not using your travel credit card to withdraw cash can also minimise the interest you pay, as cash withdrawals typically come with higher interest charges or fees.

What are the advantages of using a travel credit card over cash when travelling?

While using cash abroad can be an easy way to pay without worrying about fees and can stop you going over your budget, there are several benefits to using a credit card instead.

• There’s a risk that cash could be lost or stolen. A travel credit card can also be lost or stolen, but it’s easy to block a credit card so you can minimise the financial damage caused.
• You may find it easier to pay by card in some places, as certain retailers may be card-only and not accept cash.
• Credit cards can be useful if you end up spending a bit more than expected, whether you decide to buy more gifts or if you need to stay abroad for longer than planned. Just be careful not to go over your credit limit or spend more than you can afford to repay.
• It may be possible to earn cashback or rewards on your spending abroad, unlike if you use cash. Not all travel credit cards offer this perk, however.
• Travel credit cards offer the same Section 75 protection on purchases between £100 and £30,000 that other UK credit cards do. This means that, thanks to the Consumer Credit Act, you can apply for a refund from your card provider as a last resort if your purchase turns out to be faulty, so you won’t have to rely solely on a foreign seller giving you your money back.

Travel credit cards vs prepaid travel cards

Prepaid travel cards have little to no charges for using the card abroad, just like travel credit cards. However, unlike a travel credit card (which is a form of borrowing) a prepaid card requires you to load money from your current account (or another source) onto the card.

You may be able to choose to convert your pounds into euros or dollars when you add the money to the card, rather than when you use the card abroad. This could allow you to lock in a favourable exchange rate before you travel.

Some prepaid cards will even allow you to put multiple types of currencies on them. You’ll have to check carefully to see if the prepaid travel card you want offers any different currency option.

While applying for a travel credit card involves a hard credit check and other affordability assessments, applying for a prepaid card won’t require any of these checks. So, if you think you’d struggle to be approved for a travel credit card, a prepaid travel card may be worth considering.

Because you can only spend as much with a prepaid travel card as the amount you put on, there’s no risk of spending above your budget and getting into debt. By contrast, a travel credit card could tempt you into spending more than planned and, if you can’t afford to pay off your card, you could end up with expensive debt to pay off.

Drawbacks of prepaid travel cards compared to travel credit cards

Prepaid travel cards have some downsides compared to travel credit cards.

Firstly, once you’ve spent all the money loaded onto the prepaid card, you’ll have to put more money on it before you can use it again. This could be inconvenient, difficult or even impossible while you’re still abroad.

Another potential downside is the charges that may come with these prepaid travel cards. Aside from the foreign exchange fees, which both kinds of cards may or may not have, there may be additional transaction fees, ATM charges and a fee just for getting the card. Some cards may also charge an inactivity fee if you don’t use your card for an extended period. Because of this, you should always check the fees associated with a prepaid card before applying.

It’s also worth noting that you may not be able to use prepaid travel cards everywhere, with many car hire firms not accepting them, for example.

And, unlike travel credit cards, prepaid cards won’t come with any Section 75 protection on purchases.

Choosing the best card for your travels

If you don’t want to take cash on your trip abroad, you could consider a travel credit card, a prepaid travel card or a debit card that doesn’t charge any fees for spending overseas.

To help you choose the right card for your travels, consider:

• where you are travelling to
• how much you’re likely to spend
• whether the card charges a maintenance fee (or other standard fees)
• if there are any transaction charges on overseas spending
• how likely you are to withdraw cash, and whether a card charges a cash withdrawal fee
• if a travel credit card offers any extra benefits, such as reward points
• your credit history, as a poor credit score could limit the options available to you
• whether a credit card could tempt you to spend more than you can afford to repay.

Instead of selecting just one option, many people may like to have two or more ways to spend while abroad. For example, you could take a travel credit card as well as some cash as a back-up option.

Should you choose pounds or local currency when paying abroad?

Wherever you are in the world, it’s generally cheaper to pay in the local currency rather than pounds.

So, if you’re in a country that uses the euro, and you’re asked whether you’d prefer to complete the transaction in pounds or euros, it’s usually better to pick euros.

Paying in the local currency means you will pay at the exchange rate set by your card provider whereas, if you pay in pounds, the bank behind the retailer or restaurant, for example, does the calculation (known as dynamic currency conversion).

The exchange rate of your card provider will usually be more competitive than the one used by the merchant, so paying in the local currency is likely to be cheaper than paying in sterling.

Who offers the best travel credit cards?

The best travel credit card will typically be one that doesn’t charge any foreign transaction fees. But, aside from this key feature, the best card is subjective and depends on your individual situation and requirements.

For some, the best travel credit card may be one that charges a monthly or annual fee but offers generous perks such as cashback. However, for others, the best option may be one that doesn’t charge a monthly fee but offers a lower interest rate on purchases or a more competitive rate on cash withdrawals.

As well as checking the features of a travel credit card, it’s also important to look at the eligibility criteria and see if you qualify for a card before applying. Whether you qualify for a card and, if approved, the interest rate and credit limit you receive will be a significant factor in determining which travel credit card is best for you.