Credit card rates rise as banks bite back
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Default charges on credit cards were said to be too high and were capped at £12. To recoup lost revenue lenders then hiked rates and charges elsewhere – find out how much the rates and charges on credit cards have increased
Credit card customers are facing higher interest rates and charges after the Office of Fair Trading (OFT) suggested banks put a cap on penalty fees, research has showed.
The OFT declared in April 2006 that default charges for people who miss a payment or have it bounce were too high and called for them to be capped at £12.
But since then the average interest rate we’re being charged on credit cards has increased from 14.9% to 16.4%, according to financial information group Moneyfacts.co.uk.
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“Whereas only a select number of customers were being penalised, now all borrowers are paying the price,” says Michelle Slade, analyst at Moneyfacts.co.uk.
We all pay the price
If you have a credit card balance of £5,000 and repay 2.5% of the debt each month you would now be paying an additional £755 in interest as a result of the 1.5% increase in rates.
Credit card companies and banks have also increased the rates they charge for cash advances, raising these from 18.1% to 24.3%.
“Taking cash out on credit cards has always been an expensive way of borrowing, particularly as interest is charged from day one.” says Slade.
“But with the 6.2% increase in the average rate for customers who are relying on cash advances to balance their monthly budget it will make a bad situation even worse.”
The fee for using a credit card to get cash has also gone up from 2% or a minimum of £2 to 3% and a minimum of £3.
