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5 Aug 2020

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The never-ending credit card debt!

As expected, since the OFTs intervention in the credit card market to reduce default fees, providers have not taken this loss in revenue lying down. In the last three months Moneyfacts researchers have seen 19 card providers increase interest rates, some by as much as 12.1%. Lisa Taylor, analyst at moneyfacts.co.uk comments:

“While it may be argued that the 0.25% increase to base rate in August resulted in some of these increases, with rises of up to 12.1% it is clear other forces are at play.

“Rising bad debts and the lost fee revenue has left many providers with no choice but to look for alternative avenues for income. And it seems, raising interest rates is a popular option. For many consumers this rise may go unnoticed – but should they take the time to look at the long term consequences, they could be in for a nasty surprise.

“Take, for example, a customer owing £1K on their credit card. At a rate of 8.9%, paying the minimum balance of 2.5% (min £5), the debt would be repaid in 11 years and 4 months, incurring total interest of £342.46. But should this rate rise 6% to 14.9%, the same debt would take 14 years and 3 months to repay, stacking up £731.69 in interest.

“So a 6% interest rise more than doubles the interest payable and extends the term of repayment by a whopping 2 years 11 months.

“Withdrawing cash from your credit card can be an expensive way to replenish your wallet, as you’re not just paying a high interest rate but also a withdrawal fee. With many people’s finances on a knife-edge, it may be that more and more people are relying on credit card cash withdrawals to make ends meet. With 26 cards raising their cash rates since the start of July - perhaps credit card providers have cottoned on to this.

“Not only are providers increasing rates, but over the last five years we have seen a dramatic reduction to the minimum repayments required. In 2001, around 70% of card provider’s stipulated minimum repayments of at least 3%; today only 30% of lenders require a monthly repayment of this amount or greater. 

“Extending debt over a longer term and increasing the interest payable does not seem a responsible approach to lending, especially in the current climate of rising debt, defaults and arrears.

“If you are able to make payments, even slightly above the minimum required, you may be surprised at the effect this has on your outstanding debt. In the example below, increasing monthly payments from 2% to 3% would save you £570.68 in interest and knock over eight years off your repayment term.”


Minimum Payment

Term

Total interest payable

2% (min £5)

19 years 7 months

£1,116.01

3% (min £5)

11 years 5 months

£545.33

5% (min £5)

6 years 9 months

£268.63

7% (min £5)

4 years 11 months

£176.06

10% (min £5)

3 years 7 months

£114.00

Source:www.moneyfacts.co.uk  Example based on a £1K balance @ 14.9% APR

Company

Card

Date of Change

Type of Rate changed

Previous Rate

New Rate

Increase

American Express

Platinum Amex

10.07.06

Purchase

8.9% APR

14.9% APR

6%

Barclaycard

Simplicity Platinum Credit Card

1.8.06

Cash

15.8% pa

27.9% pa

12.1%

Capital One Bank

Classic Visa

16.08.06

Purchase

29.9% APR

34.9% APR

5%

Cash

29.94% pa

34.94% pa

5%

Platinum Credit Card

11.9.06

Cash

21.94% pa

25.94% pa

4%

Citi

Platinum Credit Card

4.9.06

Purchase

15.9% APR

16.9% APR

1%

Cash

23.086% pa

28.008% pa

4.922%

Co-operative Bank

Platinum Tracker

04.08.06

Purchase

8.8% APR

9.1% APR

0.3%

Cash

8.835% pa

9.107% pa

0.275%

Gold Base Rate Visa

04.08.06

Purchase

8.9% APR

9.2% APR

0.3%

Cash

4.594% pa

11.3% pa

6.706%

Egg

Visa

08.09.06

Purchase

15.9% APR

16.9% APR

1%

Cash

20.9% pa

22.9% pa

2%

Egg Money MasterCard

08.09.06

Purchase

6.9% APR

7.9% APR

1%

Cash

6.9% pa

7.9% pa

1%

First Direct

Gold Card Visa

01.08.06

Cash

19.4% pa

21.9% pa

2.5%

Classic Visa

01.08.06

Cash

23.5% pa

24.7% pa

1.2%

Credit Card Visa

01.08.06

Cash

19.4% pa

21.9% pa

2.5%

Halifax

Balance Transfer MasterCard/Visa

09.07.06

Purchase

10.5% APR

15.9% APR

5.4%

Platinum Balance Transfer MasterCard/Visa

09.07.06

Purchase

10.5% APR

15.9% APR

5.4%

HSBC

Bank MasterCard

01.08.06

Purchase

14.9% APR

15.9% APR

1%

Cash

18.4% pa

21.9% pa

3.5%

Morrisons Visa

01.08.06

Cash

22.506% pa

23.6% pa

1.094%

Lloyds TSB

Gold MasterCard/Visa

10.07.06

Purchase

15.9% APR

17.9% APR

2%

Rewards Amex Tier 2

10.07.06

Purchase

15.9% APR

17.9% APR

2%

Rewards Amex

10.07.06

Purchase

14.9% APR

15.9% APR

1%

Platinum MasterCard/Visa

10.07.06

Purchase

14.9% APR

15.9% APR

1%

Mint

MasterCard/Visa

01.09.06

Cash

19.435% pa

24.942% pa

5.507%

Gold MasterCard/Visa

01.09.06

Cash

19.435% pa

24.942% pa

5.507%

Platinum MasterCard

01.09.06

Cash

19.435% pa

24.942% pa

5.507%

Morgan Stanley

Buy and Fly! MasterCard

06.09.06

Purchase

15.9% APR

16.9% APR

1%

Nationwide

Classic Visa

01.08.06

Purchase

14.9% APR

15.9% APR

1%

Classic Visa

24.10.06

Purchase

15.9% APR

17.9% APR

2%

Cash

18.9% pa

21.9% pa

3%

Gold Visa

01.08.06

Purchase

14.9% APR

15.9% APR

1%

Comic Relief Visa

01.08.06

Purchase

16.9% APR

17.9% APR

1%

Natwest

Airmiles MasterCard

01.09.06

Purchase

15.9% APR

17.9% APR

2%

Northern Rock

Base Rate Visa

08.08.06

Purchase

8.8% APR

9.1% APR

0.3%

Cash

8.8% pa

9.1% pa

0.3%

Smile

Classic Visa

21.08.06

Purchase

13.8% APR

16.9% APR

3.1%

Cash

16.2% pa

19.9% pa

3.7%

Current Account Customer Classic Visa

21.08.06

Purchase

10.9% APR

13.9% APR

3%

Cash

12.2% pa

16.9% pa

4.7%

Gold Visa

21.08.06

Purchase

13.8% APR

14.9% APR

1.1%

Cash

16.2% pa

17.9% pa

1.7%

Current Account Customer Gold Visa

21.08.06

Cash

12.2% pa

12.9% pa

0.7%

Ulster Bank (NI)

MasterCard/Visa

01.09.06

Cash

21.7% pa

22.335% pa

0.635%

Gold MasterCard/Visa

01.09.06

Cash

18.7% pa

19.285% pa

0.585%

Virgin Money

MasterCard

01.07.06

Cash

20.9% pa

24.9% pa

4%

Yorkshire BS

Base Rate Visa

04.08.06

Purchase

10.5% APR

10.7% APR

0.2%

Cash

10.5% pa

10.7% pa

0.2%

www.moneyfacts.co.uk - 21.9.06 Money Facts Credit Card News

 

NOTES TO EDITORS:

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry. 

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We can supply you with regular weekly or one-off selection charts on many financial products including savings, mortgages, credit cards and personal loans. Our charts are independent, impartial, totally accurate and up to date. 
Please call Andrew Hagger on 0870 2250 512 for further information.

 

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