Credit Card interest rates: Being stung by your plastic?
November, 12, 2008
Apart from the obvious reasons, why should you think twice before putting your Christmas presents on your credit card?
Because the average interest rate on credit cards now stands at 17.6%, despite the Bank of England reducing its rate to 3% last week. Someone’s getting a good deal here, and it isn’t the customer.
A survey of 200 cards by the banking research group Defaqto also found that the rate on store cards had soared to 25% and in some cases is as high as 30%.
With some companies increasing rates by as much as 10% overnight, credit card firms stand accused of exploiting vulnerable people.
Creditexpert.co.uk claims 1 in 5 people will be putting their Christmas purchases on their credit cards. Londoners and those living in the South-East are even more likely to use their plastic in the festive season. So these high rates are going to take their toll in early 2009.
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Prime Minister Gordon Brown, who is said to be deeply concerned about the way some companies are behaving, is calling for a “new responsible approach”. He says “I think we have got to bring the credit card industry in to talk to them to join with us in establishing clear principles to apply to the costs people face on their existing debts”. Let’s hope they listen.
How do the banks defend higher rates?
A spokesman for RBS explains that interest rate decisions on their credit cards are not based on the Bank of England base rate “but on a range of factors, including the Libor rate, which is how we fund our money, and this rate has remained particularly high”. This week PayPal increased the rate on its card from 12.9% to 16.9%. Barclaycard and Nationwide have said they will not be cutting rates.
The fear of losing everything
Hit by rising household bills many people fear losing their homes as credit card firms claw back the debts due. Every working day 1,400 people call Citizen’s Advice bureau concerning credit, store and charge card debts.
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Defaqto lays some of the blame for increased rates at the Government’s door. They say the Office of Fair Trading’s decision to impose a £12 cap on penalty fees is partly to blame for the rising cost of credit.
It is worth noting that people are not recklessly turning to their credit cards in the current climate. Apacs says “the average balance on a credit card is £1,856 which is lower than it has been for the previous two years”.
SaveBorrowSpend Philippa Adam
