Saturday November 15
The never-ending credit card debt!
As expected, since the OFTs intervention in the credit card market to reduce default fees, providers have not taken this loss in revenue lying down. In the last three months Moneyfacts researchers have seen 19 card providers increase interest rates, some by as much as 12.1%. Lisa Taylor, analyst at moneyfacts.co.uk comments:
“While it may be argued that the 0.25% increase to base rate in August resulted in some of these increases, with rises of up to 12.1% it is clear other forces are at play.
“Rising bad debts and the lost fee revenue has left many providers with no choice but to look for alternative avenues for income. And it seems, raising interest rates is a popular option. For many consumers this rise may go unnoticed – but should they take the time to look at the long term consequences, they could be in for a nasty surprise.
“Take, for example, a customer owing £1K on their credit card. At a rate of 8.9%, paying the minimum balance of 2.5% (min £5), the debt would be repaid in 11 years and 4 months, incurring total interest of £342.46. But should this rate rise 6% to 14.9%, the same debt would take 14 years and 3 months to repay, stacking up £731.69 in interest.
“So a 6% interest rise more than doubles the interest payable and extends the term of repayment by a whopping 2 years 11 months.
“Withdrawing cash from your credit card can be an expensive way to replenish your wallet, as you’re not just paying a high interest rate but also a withdrawal fee. With many people’s finances on a knife-edge, it may be that more and more people are relying on credit card cash withdrawals to make ends meet. With 26 cards raising their cash rates since the start of July - perhaps credit card providers have cottoned on to this.
“Not only are providers increasing rates, but over the last five years we have seen a dramatic reduction to the minimum repayments required. In 2001, around 70% of card provider’s stipulated minimum repayments of at least 3%; today only 30% of lenders require a monthly repayment of this amount or greater.
“Extending debt over a longer term and increasing the interest payable does not seem a responsible approach to lending, especially in the current climate of rising debt, defaults and arrears.
“If you are able to make payments, even slightly above the minimum required, you may be surprised at the effect this has on your outstanding debt. In the example below, increasing monthly payments from 2% to 3% would save you £570.68 in interest and knock over eight years off your repayment term.”
Minimum Payment |
Term |
Total interest payable |
2% (min £5) |
19 years 7 months |
£1,116.01 |
3% (min £5) |
11 years 5 months |
£545.33 |
5% (min £5) |
6 years 9 months |
£268.63 |
7% (min £5) |
4 years 11 months |
£176.06 |
10% (min £5) |
3 years 7 months |
£114.00 |
Source:www.moneyfacts.co.uk Example based on a £1K balance @ 14.9% APR
Company |
Card |
Date of Change |
Type of Rate changed |
Previous Rate |
New Rate |
Increase |
American Express |
Platinum Amex |
10.07.06 |
Purchase |
8.9% APR |
14.9% APR |
6% |
Barclaycard |
Simplicity Platinum Credit Card |
1.8.06 |
Cash |
15.8% pa |
27.9% pa |
12.1% |
Capital One Bank |
Classic Visa |
16.08.06 |
Purchase |
29.9% APR |
34.9% APR |
5% |
Cash |
29.94% pa |
34.94% pa |
5% |
|||
Platinum Credit Card |
11.9.06 |
Cash |
21.94% pa |
25.94% pa |
4% |
|
Citi |
Platinum Credit Card |
4.9.06 |
Purchase |
15.9% APR |
16.9% APR |
1% |
Cash |
23.086% pa |
28.008% pa |
4.922% |
|||
Co-operative Bank |
Platinum Tracker |
04.08.06 |
Purchase |
8.8% APR |
9.1% APR |
0.3% |
Cash |
8.835% pa |
9.107% pa |
0.275% |
|||
Gold Base Rate Visa |
04.08.06 |
Purchase |
8.9% APR |
9.2% APR |
0.3% |
|
Cash |
4.594% pa |
11.3% pa |
6.706% |
|||
Egg |
Visa |
08.09.06 |
Purchase |
15.9% APR |
16.9% APR |
1% |
Cash |
20.9% pa |
22.9% pa |
2% |
|||
Egg Money MasterCard |
08.09.06 |
Purchase |
6.9% APR |
7.9% APR |
1% |
|
Cash |
6.9% pa |
7.9% pa |
1% |
|||
First Direct |
Gold Card Visa |
01.08.06 |
Cash |
19.4% pa |
21.9% pa |
2.5% |
Classic Visa |
01.08.06 |
Cash |
23.5% pa |
24.7% pa |
1.2% |
|
Credit Card Visa |
01.08.06 |
Cash |
19.4% pa |
21.9% pa |
2.5% |
|
Halifax |
Balance Transfer MasterCard/Visa |
09.07.06 |
Purchase |
10.5% APR |
15.9% APR |
5.4% |
Platinum Balance Transfer MasterCard/Visa |
09.07.06 |
Purchase |
10.5% APR |
15.9% APR |
5.4% |
|
HSBC |
Bank MasterCard |
01.08.06 |
Purchase |
14.9% APR |
15.9% APR |
1% |
Cash |
18.4% pa |
21.9% pa |
3.5% |
|||
Morrisons Visa |
01.08.06 |
Cash |
22.506% pa |
23.6% pa |
1.094% |
|
Lloyds TSB |
Gold MasterCard/Visa |
10.07.06 |
Purchase |
15.9% APR |
17.9% APR |
2% |
Rewards Amex Tier 2 |
10.07.06 |
Purchase |
15.9% APR |
17.9% APR |
2% |
|
Rewards Amex |
10.07.06 |
Purchase |
14.9% APR |
15.9% APR |
1% |
|
Platinum MasterCard/Visa |
10.07.06 |
Purchase |
14.9% APR |
15.9% APR |
1% |
|
Mint |
MasterCard/Visa |
01.09.06 |
Cash |
19.435% pa |
24.942% pa |
5.507% |
Gold MasterCard/Visa |
01.09.06 |
Cash |
19.435% pa |
24.942% pa |
5.507% |
|
Platinum MasterCard |
01.09.06 |
Cash |
19.435% pa |
24.942% pa |
5.507% |
|
Morgan Stanley |
Buy and Fly! MasterCard |
06.09.06 |
Purchase |
15.9% APR |
16.9% APR |
1% |
Nationwide |
Classic Visa |
01.08.06 |
Purchase |
14.9% APR |
15.9% APR |
1% |
Classic Visa |
24.10.06 |
Purchase |
15.9% APR |
17.9% APR |
2% |
|
Cash |
18.9% pa |
21.9% pa |
3% |
|||
Gold Visa |
01.08.06 |
Purchase |
14.9% APR |
15.9% APR |
1% |
|
Comic Relief Visa |
01.08.06 |
Purchase |
16.9% APR |
17.9% APR |
1% |
|
Natwest |
Airmiles MasterCard |
01.09.06 |
Purchase |
15.9% APR |
17.9% APR |
2% |
Northern Rock |
Base Rate Visa |
08.08.06 |
Purchase |
8.8% APR |
9.1% APR |
0.3% |
Cash |
8.8% pa |
9.1% pa |
0.3% |
|||
Smile |
Classic Visa |
21.08.06 |
Purchase |
13.8% APR |
16.9% APR |
3.1% |
Cash |
16.2% pa |
19.9% pa |
3.7% |
|||
Current Account Customer Classic Visa |
21.08.06 |
Purchase |
10.9% APR |
13.9% APR |
3% |
|
Cash |
12.2% pa |
16.9% pa |
4.7% |
|||
Gold Visa |
21.08.06 |
Purchase |
13.8% APR |
14.9% APR |
1.1% |
|
Cash |
16.2% pa |
17.9% pa |
1.7% |
|||
Current Account Customer Gold Visa |
21.08.06 |
Cash |
12.2% pa |
12.9% pa |
0.7% |
|
Ulster Bank (NI) |
MasterCard/Visa |
01.09.06 |
Cash |
21.7% pa |
22.335% pa |
0.635% |
Gold MasterCard/Visa |
01.09.06 |
Cash |
18.7% pa |
19.285% pa |
0.585% |
|
Virgin Money |
MasterCard |
01.07.06 |
Cash |
20.9% pa |
24.9% pa |
4% |
Yorkshire BS |
Base Rate Visa |
04.08.06 |
Purchase |
10.5% APR |
10.7% APR |
0.2% |
Cash |
10.5% pa |
10.7% pa |
0.2% |
www.moneyfacts.co.uk - 21.9.06 
NOTES TO EDITORS:
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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