Using Your Credit Card Abroad

Loading Fees for foreign transactions

Most credit card providers levy a foreign currency-loading fee against all purchases made abroad and some charge a foreign currency-loading fee on purchases made on overseas web sites. Typically this loading fee is 2.75%, so for example, if you make a purchase costing one hundred pounds sterling, the actual cost is 102.75 GBP.
Some credit card providers do not show foreign currency loading fees on monthly statements, so either contact your credit card provider, or check your terms and conditions to find out whether your credit card is subject to a foreign currency loading fee, and if so, how much is it. There are some credit car providers that actually charge  less, and some that actually charge nothing at all. So, by shopping around and finding a credit card that does not have foreign currency loading fee, you could save money on your holiday spending.

Dynamic currency conversion rate (DCC)

Picture this, you and your beloved have just finished a superb meal and polished off a very nice bottle of wine, the coffee has been drunk, so before you wander off for that late evening stroll you ask for the bill. The waiter arrives and you present him with your credit card, his next question to you is “in which currency do you want to pay, local or pounds sterling”. After the wine, you probably don’t care which currency you pay the bill in, but if you decided to pay in sterling, the restaurant or retailer could and will charge you a conversion rate that is a lot higher than the standard bank rate, this could add up to 4% on the price of your meal. In nearly every case it is better to pay the bill in the local currency even though you will still be paying the foreign currency loading fee that your credit card provider charges you.

Now, both Visa and MasterCard state in their terms and conditions that the customer must be given the choice of which currency they prefer to settle the bill in, either the local currency or the home currency. However, I am sure it will come as a tremendous surprise to you to learn that there are some somewhat less than honest retailers that make a profit from DCC by upping the exchange rate so that they ‘get their full share’, and insist you must pay in your home currency, or even program their card processing equipment to allow you to pay only by DCC - and furthermore encourage you to sign a declaration on the transaction slip that you have been given a choice of which currency to pay in, when of course, you have not. This type of scam can be found in a variety of services offered by overseas merchants, including car hire and hotels, along with the shops and restaurants. If it happens to you and you don’t want to pay in your home currency, and have not been given a choice, if possible, pay in cash and report the retailer for breaking the terms and conditions of Visa or MasterCard.

Cash Withdrawals

When you are at home or abroad, try not to withdraw cash on a credit card from an ATM as most credit card providers charge 2.5% - 3.00% of the amount withdrawn, with a minimum withdrawal fee of 2.50 GBP to 3.00 GBP, so if you withdraw 10.00 GBP, your friendly credit card provider charges you another 3.00 GBP for the privilege (Ouch!)

And it does not end there, some credit card providers charge a far higher rate of  interest than for normal transactions, around 22.5 % for cash withdrawals, and to make matters worse, interest is charged immediately the money leaves the ATM. Finally, as if you needed any more bad news, some credit card providers use a method called hierarchy of payments, which put in simple terms, means that some credit card providers will leave payment of cash withdrawals until last, so you end up paying the higher interested rate for the remainder of your credit card balance.

Now that we have looked at the downside associated with using credit cards overseas, let us look at some of the advantages they offer.

Ease of use

In the good old days, when you went on holiday with travelers cheques and wads of cash, the hassle involved in buying anything was most annoying. With the arrival of credit cards the hassle factor is taken away, you don’t have to wear a money belt when looking around for that special bargain, and credit cards are almost universally accepted wherever you go. (For those of us that are old enough to remember ‘that will do nicely thank you’)

Peace of Mind

Having just paid a small fortune for that beautiful vase you have discovered whilst wandering down a little back street, imagine how you would feel if you tripped over one of the old cobbled stones and your work of art ended up in a thousand pieces.
However, many credit cards offer free purchase protection including loss, theft and accidental damage, be aware that cover varies between credit card providers, and that limits and excesses apply to such cover.

0% interest on purchases made abroad

There are some credit cards available that do not charge a fee when used overseas, some others have low fees when used overseas. A number of credit card providers offer 0% APR as an introductory offer for purchases. So credit card holders can pay off their credit card bill interest free, over six months.

Loss and Theft

If you are unlucky enough to lose your credit card whilst on holiday abroad, or even worse, have it stolen, in most cases the credit card can be cancelled and arrangements made to have a replacement card sent out to you. (Phew!)

Anywhere in the World

It is of great reassurance that in the four corners of the globe (I know globes do not have corners), your credit card will be recognized and accepted, so there is no need to carry large sums of money around subjecting yourself to problems that is associated with carrying cash.

Summary

By taking the ‘right’ credit card with you when you travel overseas on holiday, you could save quite a bit of money. Your present credit card that you use on a day-to-day basis in the UK may not necessarily be the best one for you to take with you on holiday. The first thing to find out is whether or not your existing credit card can be used abroad.
When you go abroad on holiday, look for a credit card that offers low, or no loading fees for foreign transactions. Also choose a card that offers low ATM charges.

With the emergence of Dynamic currency conversion rate (DCC), the possibility of an overseas retailer charging you an inflated exchange rate is increasing. Always check the bill before signing it, and if it happens to you, ask for the bill in the local currency of the country.