Businesses may ask you to pay credit card surcharges, also known as checkout fees, when you pay with a credit card. These fees make credit card purchases more costly, even if it’s just a small percentage. Sometimes, it makes sense to pay credit card surcharges, but it boils down to whether the benefits of using a credit card outweigh the cost. Here’s how to decide when paying credit card surcharges is worth it.
[Read: Best Rewards Credit Cards.]
What Are Credit Card Surcharge Fees?
Credit card surcharges are fees that a merchant adds to your total when you use a credit card for payment instead of other payment forms, such as a debit card, cash or check. Credit card surcharges are intended to help merchants cover the cost of processing your credit card transaction.
You’ll recognize a credit card surcharge when a merchant informs you there’s an extra charge to pay when using a credit card. For example, you may see a sign that says there’s a 3% charge for credit card purchases. That translates to paying $25.75 instead of $25 when using a credit card.
A credit card surcharge is generally calculated as a percentage of the transaction amount and can be as high as 4% of the transaction. However, credit card networks such as Visa and Mastercard limit the allowed surcharge amount to the merchant discount rate, which is usually around 1% to 3%. Businesses must clearly disclose surcharge policies to customers. For example, a business must use in-store signage at the register that explains how much you’ll be expected to pay if you use a credit card.
It’s illegal to charge credit card processing fees to consumers in three states: Connecticut, Maine and Massachusetts, and it’s also illegal in Puerto Rico. However, merchants can offer a cash discount in all states. With a cash discount, a business can increase prices to cover processing fees and then offer a discount to customers who pay cash.
When to Pay a Credit Card Surcharge
When is a credit card surcharge worth it? The answer is subjective, but paying a credit card surcharge generally makes sense when the benefits of using a credit card outweigh the costs.
“Some of the most common factors consumers should consider when deciding between cash or credit card payments include any rewards earned, discounts offered or the type of business where you’re shopping,” says Barry Choi, personal finance expert at Money We Have. “For example, some cardholders may decide to pay with cash at a small business because they know that the surcharges charged by credit card companies can hurt small business owners.”
Before you pay a credit card surcharge, consider how much it’s worth for you to be able to use a credit card for your purchase. Surcharges on small purchases might not be a big deal, while the surcharge on larger purchases can add up to a more substantial amount of money. But you also stand to lose more on large purchases, and using a credit card can offer some protection.
Ask these questions when considering whether to pay a credit card surcharge:
— How much will you pay to use a credit card? For example, you might not mind paying 10 cents extra for your coffee but may have more hesitation if you’re paying $10,000 to a contractor and having to face hundreds of dollars in surcharges.
— How much can you gain by using a credit card? Compare your credit card’s value to the surcharge amount. Let’s say you earn a flat rate of 1.5% cash back on your credit card, but the merchant imposes a 2% surcharge. You won’t come out ahead in that scenario. However, if you’re working on a sign-up bonus or you earn rewards in the 3% to 5% range, the rewards value could out-earn what you pay in surcharges.
— Can you save by using a credit card? Your credit card may offer a 0% introductory annual percentage rate that the merchant doesn’t, which could be useful for large purchases you need to pay off over time. But using a credit card isn’t helpful if you’ll carry a balance and pay interest on your purchase on top of the credit card surcharge.
— How much do you value credit card protection? Credit cards are generally safer to use than debit cards because they provide better protection against fraud. But a potentially greater value is in your ability to easily dispute charges, along with protection benefits such as extended warranty coverage and purchase protection that can help you repair or replace purchased items you have issues with. It’s tough to put a number on these benefits, but they can be extremely valuable if you need them.
As you consider your answers to these questions, remember that you’ll still need to practice responsible card use.
Specifically, you’ll need to pay your credit card bill in full each month. “The interest you will be charged for not paying your card off in full will most likely eat up a lot more than any benefits you may have earned for using your credit card,” says Chip Chinery, personal finance blogger at Chip’s Money Tips.
[Read: Best Cash Back Credit Cards.]
How You Can Benefit From Paying by Credit Card
For example, if you’re buying new floors and the flooring company requires a surcharge on credit card payments, you may end up paying hundreds extra. But, on the other hand, using a credit card could help you in these ways:
— Earn a valuable sign-up bonus on your new credit card.
— Take advantage of a 0% APR on purchases that allows you to pay for your floors over time without interest.
— File a dispute with your credit card to get your money back if the flooring company doesn’t complete the job as promised.
— Add years to your flooring warranty if your card has extended warranty coverage.
— Get your damaged floors repaired or replaced within the first few months if your card has purchase protection.
[Read: Best Starter Credit Cards for Building Credit.]
Avoiding Credit Card Surcharges
As the cost of doing business increases, some merchants consider credit card surcharges a way to lower costs without raising prices for customers. But that doesn’t mean you have to pay that cost as a consumer.
Always look for credit card surcharges if you plan to pay by credit card. The fee should be prominently displayed in-store or online as you check out, but also examine receipts for additional fees.
If a business requires a credit card surcharge you don’t want to pay, you don’t have to shop there. Consider alternatives, such as a restaurant or coffee shop around the corner that doesn’t impose a surcharge.
For larger purchases, it can be beneficial to negotiate with the merchant. You might offer to pay your bill in full if you can do it by credit card without a surcharge. That could be appealing to merchants that take deposits or offer financing. Or you might leverage customer loyalty when negotiating surcharges.
And, of course, it helps to carry cash or keep money in your checking account for purchases when you don’t think it’s worth paying a surcharge to use a credit card.
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When Should You Pay a Surcharge for Using a Credit Card? originally appeared on usnews.com
