Has your credit card rate shot up?
Credit card providers have hiked interest rates over the past eight months, dealing a hefty blow to their loyal customers.
An astonishing 12 credit card providers put up their interest rates during the first half of the year, according to data provider Moneyfacts. Culprits included American Express, Bank of Scotland, Capital One Bank, Halifax and Nationwide.
Michelle Slade, spokeswoman for Moneyfacts, says as well as rate hikes, providers are withdrawing competitive deals and launching new cards with higher APRs than previously seen.
“Customers who repay just the minimum will be hardest hit with an additional £408 in interest now being payable on a modest balance of £2,000,” she says.
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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.