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Research from YouGov suggests that 60% of credit card users remain unaware of how much interest they are charged.
In addition, not a single survey participant could correctly calculate how much a typical credit card purchase would cost after interest is considered.
“It is shocking that well over half of credit card users don’t know how much interest they are paying on their purchases,” said Alex Marsh, Head of Klarna UK.
YouGov, which was commissioned to conduct this research by Klarna UK, surveyed 2,000 British consumers to gather their data.
Participants were presented with a credit card sign-up flow and were asked to calculate the total cost, including interest, of a typical purchase.
“Credit cards are incredibly complex products, with layers of different interest rates and charges. This latest research proves what we’ve long suspected - that the majority of customers struggle to understand exactly what they’re being charged,” said James Daley, Managing Director of Fairer Finance.
If you would like to read more on how interest on credit cards work, read our guide here.
Calculating the exact cost of your credit card purchase may be complicated, according to Samantha Owens, Star Ratings and Personal Finance Analytics Manager at Moneyfacts.
However, she noted that there are small changes consumers can make to ensure they are getting the best rate possible.
“Credit cards do offer the consumer a level of protection and flexibility. With a range of 0% deals for purchases and balance transfer that offer borrowing with no interest for up to 33 months, they can save the consumer a vast amount when compared to other credit products,” she explained.
In addition, Owens recommended consumers regularly check their debit orders for changes in interest being charged.
“It’s easy when paying by direct debit and having statements online to not check the interest rate that is being charged, which can change through the term of the card. But taking the time to go online and check this rate against other rates on the market can save hundreds of pounds in interest,” she elaborated.
However, Owens warned consumers be wary of introductory deals which offer enticing rates for a welcoming period.
“Consumers should make a diary note to transfer balances that start to charge interest after the 0% deal ends. This will stop any unnecessary charges,” she recommended.
Overall, keeping track of interest rate changes, ensuring payments are made on time, and not using credit card payments for high-rate transactions are key to managing the interest on your card.
If you are in the market for an interest-free credit card, use our comparison table here. You will be able to find out the total cost of borrowing, your payback period and APR among other variables.
Alternatively, if you are unaware how to calculate the interest on your credit card, use our free minimum repayment credit card calculator. This will let you know how long it will take to clear your balance when only making the minimum repayments. All you will need to use this tool is your outstanding balance and the minimum payment amount or percentage.
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