Credit card costs on the rise

Credit card costs are creeping up the wake of the credit crunch. 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 there has been a marked increase in the number credit cards increasing their rates and charges. Michelle Slade, analyst at Moneyfacts.co.uk, comments, "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."

In the past three months there have been:

• 19 purchase rate increases
• 14 cash rate increases
• 8 cash withdrawal fee increases
• 5 cards have increased balance transfer fees
• 3 increases to foreign usage charges
• 2 PPI increases
• 2 minimum repayment reductions
• 1 increase to account fee

"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," adds Michelle Slade.

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 a cut in minimum repayment 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.

16 July 2008 © Moneyextra.com

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