Shameful hikes in credit card rates
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.
Back in April, Which? Money slammed credit card companies, accusing them of being “out of touch with reality” after its research found most major providers had put up their interest rates and charges in the previous 12 months.
The report also found that 28 credit card providers had increased interest rates or other charges, reduced the number of days to pay or reduced the number of interest-free days over the last year in a bid to squeeze more money out of customers.
Credit card rates have gone up by an average of 0.5% but Mint, NatWest and Royal Bank of Scotland have all made significant rate hikes of 4%, while Abbey and the Post Office forced rates up by 3%.
Martyn Hocking, editor of Which? Money, says: “At a time when we’re all feeling the pinch, it’s hugely disappointing that credit card companies are choosing to put the squeeze on borrowers more than ever.
“They need to make credit cheaper and their charges more transparent and fair, rather than making it harder than ever for people to make ends meet and pay back their debts.”
Have you been hit by credit card rate rises? If so Moneywise wants to hear from you – email firstname.lastname@example.org
So, what should you do if your rate rises?
Firstly, make sure you regularly check your credit card’s interest rate and charges to ensure these don’t suddenly creep up. If your interest rate does increase then it might be worth seeing if you can switch to a better deal.
While competitive deals are harder to find compared to 12 months ago, there are still some 0% deals on balance transfers and new purchases available.
Virgin Money’s MasterCard offers 0% interest on balance transfers for the first 16 months from the date of issue, as long as these are made within the first 60 days. The card also offers 0% on all new purchases for the first three months from the date of issue.
Egg Visa offers 0% on balance transfers until 1 September 2010 from the date of transfer, after which time the APR reverts to 16.9%. Purchases are interest-free until 1 September 2009.
Santander's Zero credit card offers 0% interest on balance transfers for the first 12 months and 0% on new purchases for three months.
However, before you switch, be aware that most balance transfer cards require to you to pay a fee, which is normally around the 3% mark.
Virgin Money’s MasterCard charges a balance fee of 2.98%, while Egg Visa and Santander’s Zero card both charges 3%.
You'll also be subject to a credit check.
If you think your provider has unfairly hiked your interest rate then you could make a complaint.
Your first step would be to make a written complaint to your provider but, if that fails, you can contact the Financial Services Ombudsman for help.
And you would hardly be alone doing so. In the last financial year, the Ombudsman received 18,590 complaints about credit cards – up from 14,123 in the previous 12 months.
If you’ve been hit by credit card rate rises then Moneywise wants to hear from you – email email@example.com
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
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.
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%.
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