Barclaycard freezes rates
Barclaycard has pledged to freeze interest rates for at least the next four months and at the same time reduce rates by up to 5% for borrowers with low-risk profiles.
The credit card provider says no customer will see the interest they pay increase until at least June, even if their risk profile changes. It is also reducing the purchase APRs for at least three million customers by between 2.5% and 5.0%.
Selected customers deemed low-risk will be informed directly of the change, and Barclaycard says it will consider people for reductions even if they don’t pay off their balance in full each month.
New customers will also benefit from lower headline APRs on Barclaycard’s Platinum credit card and its OnePulse card by 2.5% to 12.4%.
Antony Jenkins, chief executive of Barclaycard, says: "We recognise that 2009 is going to be a difficult year for many people and we want to do what we can, when we can, to help Barclaycard's customers.”
The rate changes come alongside a host of measures that Barclaycard says will help people struggling with debt or unable to cope with the current financial climate.
As well as setting up an advice helpline for customers, Barclaycard also intends to contact people directly with an offer of help if it believes they may be getting into difficulty.
Peter Harrison, credit card expert at moneysupermarket.com, estimates the rate freeze should help nine million borrowers.
"In an environment of falling mortgage and savings rates, card providers had been strangely quiet until now,” he adds. “A copycat commitment from other providers would be most welcome.”
However, there is concern that rate cuts could encourage more people to put purchases on plastic, and potentially increase their chances of falling further into debt.
Significantly, Barclaycard says it plans to use behavioural data shared with other credit card providers to monitor customers and potentially predict when they may be getting into difficulty. For example, a customer who continually switches from one 0% promotional deal to another could be flagged up as a struggling to pay off their balance.
Harrison says: "Lower rates clearly show Barclaycard's desire to get customers spending after 0% promotional periods end. And with Barclaycard committed to sharing data with other lenders - as part of a joined-up approach to responsible lending - it means 0% switching may become more difficult."
Andrew Hagger, spokesman for Moneynet.co.uk, also warns against customer apathy: “Just because a customer has had their interest rate frozen, they shouldn’t just sit back and pay over the odds for their borrowing. In many cases and particularly where they have a good repayment record, there is probably a cheaper rate to be had elsewhere.”
Following consultations with the government, credit card providers – including Barclaycard – have committed not to chase customers for payments if they fail to meet their minimum repayment for up to two months.
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.