Credit card costs causing concern?

The base rate has held but interest rates are rising in the credit market.

The Bank of England may have just opted to hold the base rate at 0.5% for third consecutive month, but it is rising interest rates that have once again caused raised eyebrows in the credit card market.

A no-change decision by the Monetary Policy Committee hardly came as a shock, but what may have surprised some borrowers is the news that credit card rates still appear to be increasing.

The series of cuts announced in past months may have brought a sense of optimism for those planning to compare credit card deals, but in reality Moneyfacts.co.uk has identified a situation that is just the opposite.

According to the price comparison site, the average rate charged two years ago was 16.3%, a figure that has now risen to 18.1%.

Michelle Slade, analyst at Moneyfacts.co.uk, noted that those repaying the minimum amount on a £2,000 loan will be hit with an additional £408 in interest - a fact that could emphasise the need to find the best credit card offers.

Explaining the lenders' actions, she said: "Rising unemployment means that the risk of customers defaulting on their card repayments has increased, which is being passed on through higher rates. If customers are struggling with repayments, unsecured lending is one of first casualties as customers fight to keep hold of their property."

However, Ms Slade did note that those looking for the best deals will still be able to find the occasional 0% credit card.

Indeed, Norwich and Peterborough Building Society (N&P) has launched just such a product this week. Balance transfers made in the first 90 days will not be subject to interest charges, while purchases also come interest-free for the first three months.

After that, it reverts to a typical rate of 15.9% - well below the average identified by Moneyfacts.co.uk.

"Smart shoppers who like the security of paying for items by credit card will be able to capitalise on the year-long interest-free option when they transfer the balance from another credit card," the company stated. Andrew Clare, head of banking at N&P, added that he is "pleased to be able to offer our customers such an attractive credit card offer".

The definition of "smart shoppers" is probably open to a degree of interpretation, but with interest rates steadily rising it certainly makes sense for those who do wish to use this form of finance to do their homework if they are to find the best credit card deals.

Article Tags: Credit Card

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR