Credit card customers stung by £623 million in extra interest fees
Nearly half (49%) of all consumers with a 0% credit card have been hit with high interest rates when their introductory deal has ended
On average credit card holders have incurred £267 in charges when the interest-free period has ended – a total of £623m across Britain
Nearly a third (31%) said they received no notice from their provider that the interest rate was increasing
82% of credit card holders took an average of four months longer to pay back their balance as a result
85% would consider switching to a better rate if they had been warned their deal was due to expire
Uswitch.com is calling on credit card providers to more prominently remind customers when their introductory period is about to end and clearly lay out what the new interest rate will be.
Nearly half of all customers (49%) who have taken a credit card with an introductory 0% deal have been stung by an average of £267 in additional payments, according to Uswitch.com, the price comparison site and switching service. The unexpected payments add up to over £623 million in extra interest charges for British credit card holders.
Credit card providers are enticing customers with attractive introductory 0% offers that can now stretch up to as much as 40 months. But the longer the deals, the greater the risk that consumers forget when they took out the credit card in the first place, with serious implications. When the introductory offer is over, the interest rate jumps to the provider’s standard APR which can be up to a staggering 34.9%.
Despite these high interest charges, almost a third (31%) of those who have taken out a 0% credit card said they received no prior warning from their provider of when the interest-free period would come to an end. This contradicts the rules set out in the industry’s Lending Code, which require lenders to inform customers four to eight weeks before the introductory offer ends “on the front of the statement or in a separate, prominent personal notification to the customer”. Had these consumers seen a prominent warning that their deal was due to expire, 85% said that they would have considered switching to a better deal.
As a consequence of this lack of clear and prominent information, 82% of those hit by higher interest rates claim they took four and a half months longer to repay their balance – forcing them to make dramatic changes to essential household spending. Nearly a quarter (24%) had to postpone essential home maintenance such as boiler repairs and a fifth (20%) delayed paying essential household bills. A further 23% had to delay or cancel a family holiday.
The research also reveals that even when consumers have kept a note of how long the interest-free period lasts, they are unclear when it actually starts, meaning that the offer could well run out sooner than expected. For most providers, the interest-free period begins as soon as a borrower is accepted for a card, but a fifth (20%) of people believe it’s when they transfer their first balance and 16% think it only begins when the card lands on their doormat.
Household debt is now at its highest level for five years. But, rather than helping customers manage their debt, the vast majority of credit card holders (83%) feel their provider is more interested in making money out of them.
Uswitch.com is calling on providers to clearly and prominently remind customers in advance when their introductory offer is coming to end. uSwitch is also calling on the FCA to take forward plans to improve notifications following publication of its credit card market study final report later this spring.
Tashema Jackson, money expert at Uswitch.com, says: “Credit card providers are wooing consumers with tempting 0% deals but when the rates rocket without warning, the honeymoon period is definitely over. We are calling on providers to give customers clearer and more prominent notice before jacking up the interest rate, to help people better manage their debt.
“In the meantime, the onus is on credit card holders to plan ahead. Put a note in your calendar when you take out a card for a couple of months before the perk is due to end. This will give you time to research other deals on the market and transfer your balance.”
Find out how you could save over £1,000 a year with Uswitch here.
FOR MORE INFORMATION
Rory Stoves
Phone: 020 3872 5613
Email: rory.stoves@uswitch.com
Twitter: @UswitchPR
Notes to editors
All research referred to was conducted online by Censuswide between 31st March 2016 and 1st April 2016, among 2003 UK 0% credit card holders
When asked “When the introductory 0% offer on your card ended, did you incur interest charges by rolling onto your provider’s standard interest rate? This is also known as the Annual Percentage Rate (APR).”, 49% answered “Yes”.
When asked “Thinking about when the interest rate on your card increased to the provider’s standard interest rate (APR), in total, how much interest do you estimate you incurred on your balance?”, the mean response was £266.51.
The UK Card Association states that there is £61.1 billion owed on credit cards across the UK, of which 43% is interest free or paid in full without accruing any interest = £26.27 billion. The UK Card Association has also said that £4 out of every £5 of credit card debt is paid off without accumulating any interest. This means a total of £5.25 billion of UK credit card debt on 0% balance transfer cards incurs interest. Which works out as 4,772,570 credit card holders [UK’s average credit card debt is £1,101 £61.1 billion divided by 56.9 million (total number of credit cards)] who are on a 0% deal and do not pay off their debt before the interest free period ends. Of the 4,772,570 0% balance transfer cards Uswitch research has found that 49% of respondents on 0% balance transfer cards said that they incurred interest charges when rolling onto their providers standard interest rate = 2,338,559 credit card holders. On average, respondents incurred charges of £266.51 = £623,249,359.
When asked “Thinking about the most recent card you held which had an introductory 0% offer, did your credit card provider give you advance notice of when the 0% period was due to end?” 17.8% answered “No - I had no prior warning from my provider about the introductory period ending” and 13.4% answered “No - I was only notified when it had already ended” = 31.2%
When asked “How did this additional interest on your card’s balance affect your debt repayment plans?”, 53.7% answered “It took me longer than I thought it would/ planned to repay my balance” and 28% answered “It took me longer than I thought it would/ planned to repay my balance and I'm still paying off the interest now” = 81.7%. On average, respondents estimated it took them 4.49 months longer to pay off their balance because of the additional interest.
When asked “‘Receiving a notification from my credit card provider that my 0% deal was due to expire would encourage me to switch to a better credit card offer.”, 32.8% said ‘Strongly agree’, 52.2% said ‘Agree’.
The average credit card APR was 17.9% in Dec 2015, while the Capital One Balance Transfer Card APR is 34.9%
http://www.lendingstandardsboard.org.uk/docs/lendingcoderevised0915.pdf
When asked “Did you have to do anything to handle the additional interest payments?” 24.3% answered “I had to postpone essential home repairs (e.g. boiler repair)”, 23.2% answered “I had to delay or cancel family plans (e.g. holiday)”, 19.9% answered “I had to delay paying other bills”
When asked “Which of the following statements do you believe is true?”, 19.5% said “The introductory offer period on my credit card begins as soon as I transfer my balance or make my first purchase”, 16% said “The introductory offer period on my credit card begins on the date I receive the card in the post”.
When asked “To what extent do you agree with the following statement ‘My credit card provider is more interested in making money out of me than helping me manage any debt I might have’?”, 29.7% said ‘Strongly agree’, 53.4% said ‘Agree’.
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