Interest rates may have fallen to the point they have gone negative at some European banks, but that seemingly hasn’t stopped credit card providers shamelessly upping the interest they charge customers who don’t pay off their bill in full each month.
Providers pushing up interest rates.
Providers have been pushing up interest rates, despite the Bank of England’s base rate remaining at a near all-time low.
According to data
website Moneyfacts, the average interest rate (APR) for those making credit
card purchases hit an eye-watering 24.7% this month – the highest since the
company started charting the figures back in 2006.
Within the past three months, Tesco Bank pulled its Clubcard credit card, which at 5.9% was, it said, the lowest-rate card on the market.
During the same
period, Bank of Scotland, Halifax and Lloyds Bank all increased the purchase
rate on their cards.
MBNA also raised its rates, as did rival provider IHG Rewards Club.
“The hardest up will be hardest hit.”
Experts said hard-up customers and those with the least
financial knowledge are the most likely to be punished.
The timing of increased interest rates is also predicted to cause more problems with millions expected to turn to plastic to cover the cost of Christmas. This will see more and more people struggling with debt next year.
“This comes at the same time as we see people calling for help with debt at an all time high.“
Rachel Springall, a finance expert at Moneyfacts, said:
“The latest data from banking body UK Finance showed that 53% of cardholders are paying some interest on their credit card account at these inflated rates.
“Credit card customers should take every opportunity to pay more than the minimum repayment. A borrower who makes a purchase of £3,000 on a typical credit card, and repays £100 per month, will have the debt linger for over three years, and it will cost them £970 in interest,” she says.
“This alone, then, should reaffirm the importance of clearing the debt as fast as possible, or to switching the debt over to an interest-free deal.”
Lenders have removed some of the lowest charging interest rates.
Tesco Bank’s 5.9% Clubcard credit card has been pulled. And Bank
of Scotland, Halifax and Lloyds Bank raised the purchase rate on their cards
from 6.4% to 9.9%.
MBNA’s Mastercard has risen from 19.9% to 20.9%.
Ms Springhall continued:
“Consumers who turn to credit cards… will find the cost to borrow is starting to rise, as the most lucrative low-rate cards have worsened. Over the past quarter, we said goodbye to the lowest-rate purchase credit card on the market and have seen rates increase.”
James Daley, boss of consumer group Fairer Finance, said:
“It is hitting the people who can’t pay off their balance, so can least afford the charges. [Card firms] are greedy and have got the business model wrong.”
UK households had £73billion worth of balances on credit cards
at the end of May this year.
A spokesman for Lloyds Banking Group, which includes credit card
brands Lloyds Bank, Bank of Scotland, Halifax and MBNA, said:
“We regularly review our pricing across our credit card ranges, but continue to offer competitive options on purchase rates.”
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