Not only is using a credit card an easy way to purchase groceries, goods, and other essential items, but it also may be an effective strategy for building a strong credit score. Still, reaching for your credit card to make payments or peer-to-peer transfers through Venmo, PayPal or other apps may be more expensive than you think.

When you sign up for a credit card, its issuing bank must disclose the interest and fees you must pay. Before linking your credit card to a payment app, though, should understand the cost of credit.

What is cost of credit?

If you use your credit card to make a $100 purchase, you are essentially borrowing $100. The cost of credit is everything you must pay when repaying your $100 loan. In addition to interest and fees from your credit card company, your credit costs may include third-party transactional fees and other expenses.

Why do payment apps increase your cost of credit?

Venmo, PayPal, and other payment apps typically charge you a fee of roughly 3% to use the service. How the payment app processes your transaction, though, may result in even higher fees. For example, processing the transaction as a cash-like transfer instead of an ordinary purchase may cause you to pay higher fees than normal for essentially a cash advance.

How does Truth in Lending Act help you?

The federal Truth in Lending Act requires your credit card company to disclose the costs of using payment apps before you complete a transaction using your credit card. The Act also requires the financial institution to notify you of promotional or introductory rates.

Ultimately, if the credit card issuer does not clearly disclose the cost of credit for using payment apps, it may be in violation of the TILA.