What to look out for in credit card small print
Have you ever bothered to read the small print that came with it, and do you read the terms and conditions before you apply for a new one?
There are numerous catches and loopholes in the fine print of your credit card agreement that you need to be aware of, otherwise you could end up out of pocket.
WHAT IS A TYPICAL APR?
If the interest rate offered is described as a "typical APR" that means it will only be available for those applicants who have a squeaky clean credit record, everyone else could end up with a much higher rate.
Under EU rules, a credit card firm only has to provide the typical APR advertised to 51% of applicants.
BEST RATES ONLY AVAILABLE FOR SPENDERS
Credit cards offering a 0% interest rate on purchases can be very tempting but make sure you check the small print for any catches.
Some of these deals come with a minimum spend before you qualify for the 0% rate. For example, the Tesco card offers 0% for twenty five months but you only earn clubcard points if you spend on the card.
0% BALANCE TRANSFER CUT-OFFS
Another way credit card providers lure you into taking credit with them is with a 0% interest rate on balance transfers.
This can be a really useful tool when managing debt but make sure you check what the cut-off point is for making those transfers.
For example, the best buy at present is the Barclaycard Platinum Balance Transfer card, which offers 0% for 26 months on balance transfers, but you must transfer the debt onto the card within 60 days of applying for the card.
THE CASHBACK RIP-OFF
Cashback credit cards are riddled with loopholes in the small print. All of them have a maximum spend in order to protect themselves from a shopaholic bankrupting them. But, equally, many have a minimum spend, too.
For example, the Sainsbury's Cashback Low Rate card advertises that it offers users 5% cashback for the first three months.
In fact, the 5% cashback is capped at £50 a month. A further 5% cashback is subject to you spending £500 a month on the card (£250 of that at Sainsbury's).
If all the pitfalls are too much to bear, don't just stick your credit card in a drawer and forget about it. Some credit cards charge a dormancy fee if you don't use them regularly.
For example, all Santander-issued store cards, including Topshop and Laura Ashley cards among others, charge a fee of £10 if you remain in debit for three consecutive months.
So, be sure to read the small print about your card as it may turn out your flexible friend isn't quite as limber as you thought.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Cashback credit cards
These reward you with a small percentage of cash back on your total spend on the card, either each month or annually. Cashback cards carry high APRs and ONLY work if you pay your balance off in full every month. If you miss payments and have existing credit card debts, leave these well alone.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.