19 March 2007
Research from the price comparison and switching website uSwitch.com has revealed that almost a million Britons believe they are not being charged when they withdraw cash using their credit card.
In addition, 80% of those polled did not understand what charges they would incur from ATM withdrawals on credit cards overseas and the vast majority of shoppers were shown to be unaware that cash rates have increased by 30%, from an average rate in May 2005 of 20.8% APR to the equivalent today of 27.06% APR.
Nick White, Director of Financial Services at uSwitch.com, said: "Some providers are now charging up to the APR equivalent of 31.23% on cash withdrawals, which is higher than the average sub-prime credit card of 30.9% APR.
"People who use a credit card to withdraw cash may already be struggling under the burden of debt and are having to resort to this method of borrowing to make ends meet."
Mr White continued to say that while uSwitch.com accepted that credit card providers have to make money and that cash withdrawals carry a higher risk of people getting into bad debt, it is "indefensible" for lenders to penalise their "most vulnerable" customers.
Other financial slip-ups which consumers aren't aware of include the fact that cash withdrawals on a credit card are not eligible for an interest free period, so customers pay interest on the amount withdrawn from the day of the transaction.
Also, following changes made by the Department of Trade and Industry back in 2005, the annual rate that the banks now display does not take into account compounding interest, fees or charges and therefore appears to be lower than an APR.
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