Despite Cap on Fees, Credit Card Borrowing More Expensive Than Ever
Rates and charges on credit cards have risen significantly in the past two years, new research shows, despite a cap restricting late payment charges imposed in 2006. The Office of Fair Trading imposed a £12 cap on late payment charges (some banks were charging over twice that), but since then average purchase rate APR on credit cards has increased from 14.9% to 16.4%. There have also been significant rises on a number of credit card services – the rate for taking out cash on credit cards has increased from 18.1% to 24.3%, while the cash advances are up from 2% to 3%. All in all, it is estimated that credit card borrowing is now 15% more expensive than it was before the cap on charges was put in place.
Previously, banks were unfairly penalising those who fell behind on their payments, but now every borrower is affected. The ‘back door’ nature of many of the charges has left many debtors unaware of the true cost of borrowing in many cases. Credit cards always one of the most tempting ways to borrow, simply because they are easy to acquire and fun to use. They are also amongst the most problematic forms of borrowing – few sources of credit have such a maze of variable rates, charges and deceptive offers seemingly designed to catch borrowers out. Earlier this week, this blog discovered the apparently deliberate trap on many 0% interest rate credit cards. There seems to be little to challenge the perception of credit cards as little more than convenient moneyspinners for creditors, dressed up as fashionable financial status symbols.
With the cost of living rising rapidly, and growing uncertainty over house prices, many people will be looking for a little extra money to help make ends meet. But anyone who borrows on a credit card needs to make sure that they know what they are getting into, and needs to make it their first priority to clear credit card debt before it grows out of control.
