Credit cards Updated:
Until recently the credit card market had seemed to continue along as it always has. Lenders extended introductory deal dates as they always have, some lenders amended their rates, while others increased charges.
However, since April we have seen a marked increase in the number credit cards increasing their rates and charges. Credit card companies usually tend to shy away from increasing the purchase rate as this is the headline rate all consumers will look at when selecting a new card. Many card companies have preferred instead to increase the rates and charges that many consumers may take little notice of when selecting a card.
The Nectar Amex card from American Express has seen a 3% increase in the purchase rate. If a consumer had £3,000 on the card and repaid just the minimum, they would now have to pay an additional £1,073 more than they would have before. Some of the recent changes could perhaps be justified by lenders' increased risk and cost control as a result of the credit crunch. Others, such as reducing the minimum repayment, could just be seen as squeezing more profit from those who are already feeling the pinch.
Clydesdale Bank and Yorkshire Bank have reduced their minimum repayment from 3% min £5 to 2.5% min £5. If you had a balance of £5,000 on their cards, charging 15.9% APR, you would have paid £3,268.89 in additional interest over 19 years and 2 months by repaying the minimum at 3%. By dropping it to 2.5%, you repay £4,548.69 and it will take you 25 years and 2 months to clear. That adds an additional £1,279.80 to the debt.
Although it may appear to be a slight relief to consumers struggling to keep up with existing monthly repayments, it has a much more negative effect in the long run.
With reports showing more and more consumers using their credit cards to keep their heads above water, these increases will be a big blow.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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