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Credit Cards in Germany: Why they’re not really “credit” cards

Obtaining a credit card in Germany is relatively straightforward for anybody who has a permanent address and regular, stable income. What you’ll soon discover though is that what it actually offers you is substantially different to what you’re expecting, based on the credit cards you’re used to in your home country. Not only that but in many cases, you’ll be charged for the privilege.

In this article I’ll explain to you why that is, as well as giving you some advice how to get the best deals on credit cards in Germany.

You’ll need to shop around, as the market is definitely not as competitive as the UK, US or Australia.

Let’s start first with how we think of a credit card:

Definition of a credit card to Brits, Americans, Canadians, Aussies and most other developed nations

An everyday method of payment which is used all the time, to pay for anything from grocery shopping, petrol, clothes, all the way through to exclusive holidays or a new kitchen.

Definition of a credit card to Germans

Something to be used only in emergencies, or to use out of pure necessity in order to purchase stuff online, or to reserve hotel rooms and book rental cars.

How are German credit cards different?

It’s important to grasp this very fundamental difference between how Germans culturally view credit cards (and debt in general) versus how English-speaking countries see them.

Why?

Because it goes a long way towards explaining why you may be disappointed at first to realise that a “credit card” in Germany isn’t really a credit card as we know it.

It is, in effect, just a glorified charge card that defers payment until the end of the calendar month. At which point, the bank just takes the money owed on the credit card via a direct debit from your current account, for the full amount due.

You don’t get the choice to pay off the minimum amount, or to pay a set amount or percentage of the remaining debt each month as you prefer.

Germany and the lack of debt-driven consumer spending

Credit cards to us expats are typically defined as a flexible method to spread payment for something over a period of time determined by the buyer. In Germany, they don’t use credit cards in this way.

If Germans need to borrow money to finance a major purchase, they will usually go and take out a loan (Verbraucherkredit), payable over a fixed term, at a fixed interest rate. They don’t use their credit card to finance it.

Germans also tend to live within their means, except for high-end capital purchases.

The overwhelming majority of Germans will generally pay for something like a new TV or a new computer in full, at the time of purchase. Consumer credit is only really the norm for major purchases of much more costly items, like a new car or a new kitchen i.e. 4-figure purchases which would require a much longer time to save up for.

Using a credit card as a means to postpone small payments e.g. for a couple of months where cash flow is tight, is not really the done thing in Germany.“Payday loans” are also much harder to obtain and are hardly advertised anywhere.

Why is it different?

The history of this, without going into detail, goes back to the 1920s when Germany suffered hyperinflation similar to what is being experienced in today’s Venezuela (and, to a lesser extent, Argentina).

Because this is only their grandparents’ or great grandparents’ generation for most Germans, it is still very much in the national psyche. Getting into debt and living beyond one’s means is still culturally seen as being taboo.

Don’t expect deals, points and air miles

Obtaining a “credit card” from your local German bank, whether you have a traditional account or online banking, is relatively straightforward. If you’re not regularly overdrawn and you have a stable income, it should be easy to get one.

What may be surprising though is that many traditional banks such as Sparkasse, Deutsche, Commerzbank and the Volksbanken will charge an annual fee for the privilege. This typically ranges from 20 – 30.

This can be avoided through applying for a credit card with one of the more innovative, forward thinking online banks such as ING DiBa or DKB. These banks will issue you a card for free with no hidden costs. Don’t expect any perks though either, other than fee-free withdrawals in non-Eurozone countries, which is a nice-to-have for sure.

If you bank with an app-based bank such as the popular N26, then in most cases you can only get a debit card. You’ll therefore need to go to a separate institution to get a credit card to use for things like hotels and rental cars.

Pretty much all credit cards issued by German banks will debit your balance at the end of each calendar month or defined 30-day period. Some of them will also let you determine a set date each month for your balance to be deducted, so as you’re not hit just before pay day.

Airline points, cashback, travel insurance etc are not common perks offered by German credit card issuers. You can get them, sure, but then you’re looking at costly solutions such as an American Express card (which is not widely accepted in Germany anyway) or Lufthansa’s premium Miles and More card, which is a bit of a joke when you consider how dreadful the benefits of their frequent flyer program are.

Are there alternatives?

Yes, there are, but not many. Credit cards according to the definition we would use in the Anglosphere DO exist in Germany…but there are only a couple of providers who offer them.

Barclaycard and Santander are the most well-known household names who offer these types of cards. Advanzia Bank (under the brand gebuehrenfrei.com) is another option which is well reviewed on personal finance websites.

Expect the credit check to be more rigorous than if you apply for a German-style credit card because you’re asking them for actual credit, as opposed to just a deferred payment.

Interestingly, the conditions and the perks you get with these cards are often just as good or better than the others, which kind of begs the question of why they haven’t taken over the market yet. There are seemingly no disadvantages to them, other than the obvious risk of getting into debt if you’re not very good at controlling your spending.

You can still set them up to pay off the balance in full once a month, so you get all the advantages of the German-style “credit card” but without the obvious limitations.

If you’re in the market for a more premium product which offers a bunch of nice-to-have perks on top, then you could consider something like the MLP Platinum card.

You need to have an annual income of over €50k per year and the card actually costs €160 per year. Even so, it can work out as being very good value IF you take advantage of the perks included.

If you use the card, the annual cost reduces to €30 per year and included are features such as car breakdown recovery, travel insurance, as well as emergency callout for locksmiths and plumbers. Alone these would cost much more, so although the card comes at a premium, it still makes financial sense.

So, what’s best?

Ultimately credit cards are personal choice and one person’s preference may not be someone else’s. However, there is definitely a universal conclusion which we can draw from this.

Look beyond what your bank is pitching to you because it’s almost certainly not the best value product out there.

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