Capital One to Increase Credit Card Rates this Year
Capital One credit card users face a 7% hike in interest rates from September nearly doubling the rates charged for many customers. It is the latest sign of a trend that is making the credit card habit much more expensive. The opportunity to find the best credit card deals is becoming more difficult since the recession.
Despite Bank of England base rates remaining at an all-time low of 0.5% banks are pushing up interest rates and charges on credit cards. According to Capital One, this reflects the rising cost of their own borrowing.
Card issuers are also concerned that the recession is causing more bad debts. Cynics believe that banks see cards as an easy way to boost profits in hard times.
It is still possible to get 0% on balance transfers and on initial spending with credit cards, but these deals are becoming harder to find. Analysis from MoneyExpert.com shows that of 165.0% on spending deals available last year, 31 have since been withdrawn.
Worse still, the 0% period of the offer is often now shorter than before and followed by higher interest rates. Borrowers tempted to splurge on an interest free credit card will, on average, now pay nearly 18% on their account when the interest-free period ends. That is very expensive money.
The card companies have found other ways of earning more profits from their customers. Cards may be offered as interest free on transfers, but they will probably come with a 3% charge on the transfer so a borrower who transfers £2,000 to a new card faces a £60 hit for doing so.
There has also been a big increase in charges applied for using a credit card for cash withdrawals. According to a survey by price comparison website uSwitch.com, more than one in 10 cardholders assume there is no charge to withdraw cash on a credit card. In fact, card issuers charge as much as 32% interest and that is from the date of a cash withdrawal.
Using credit cards abroad can also be expensive. You may pay an extra £30 on every £1,000 you spend abroad, once you add up the currency conversion charge and exchange rate loading.
