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Judging The Hidden Costs Of Credit Cards
By: Mr Hanna iSnare Expert Author [See Author’s Biography]
Recent reports from CreditAction and the National Debtline appear to show that
UK consumers are becoming more financially aware and are looking to reduce their
levels of personal debt which have spiraled seemingly out of control over the
past few years.
Despite the industry wide introduction last year of the "honesty box" in all
credit card statements designed to outline the costs of loans and any additional
charges, it seems that the activities of some of the financial services,
especially certain credit card companies are misleading consumers and making it
difficult to determine the true costs of many financial products.
The consumer group Which? (http://www.which.co.uk) has launched an attack
against the interest rates quoted by credit card companies. The problem revolves
around the fact that there are around 20 different methods used by lenders to
calculate interest charges and these make it extremely difficult for consumers
to determine which credit card is cheapest, and have a huge impact on the amount
that is ultimately repayable. Which? states that, “if you had two cards with the
same interest rate and used them in exactly the same way, one could end up
costing over twice as much as the other just because it calculated your interest
differently.”
Moneynet (http://www.moneynet.co.uk ) chief executive, Richard Brown, said,
“Consumers are led to believe that the cheapest loan is the one with the lowest
APR. But this is far from the truth – borrowers should be aware that a loan
package does not always do what it says on the tin.”
Martin Coles, editor of Which?, said, "It's ludicrous that a card with a lower
interest rate can cost more than one with a higher rate."
Which? cite an example of borrowing £2,800 over a year and then paying in full
every four months. With a Cahoot credit card, that has an interest rate of
11.8%, the cost would be £40, while borrowing through HSBC at 13.9% would cost
£38 despite the higher interest rate.
Moneynet provide an even starker example. A £7000 loan over five years including
PPI, taken out from the RAC at 6.5% when compared with the same loan at 6.7%
from the Nationwide could lead to an additional expense of £1,846 over the term
of the agreement, despite the RAC having a lower headline rate.
The reason for the problems is that the APR generally used to compare products
is simply a measure of the cost of the credit, whilst not taking into account
other factors such as add ons like payment protection insurance (PPI), early
repayment penalties, or when the card company actually starts and stops charging
interest.
Richard Brown states, “This enables them to advertise what looks like a
competitive rate to attract customers. Then once the applicant is convinced they
have found a great deal, the commission-hungry provider will make every attempt
to sell them PPI, thus increasing their margin via the back door.”
The Office of Fair Trading is currently investigating the fees charged by two of
the biggest credit card providers, which it claims mean that consumers
ultimately pay more for the goods they buy.
Which? has requested that the credit card industry uses one standard way to
charge interest so consumers really can choose the cheapest card. However until
this happens and a more transparent means of comparing credit cards is
implemented across the board, consumers are urged to look beyond the attention
grabbing APR and ensure they get all the facts prior to taking out any financial
agreement.
Disclaimer:
All information contained in this article, is for general information purposes
only and should not be construed as advice under the Financial Services Act
1986.
You are strongly advised to take appropriate professional and legal advice
before entering into any binding contracts.
Useful resources:
Moneynet financial comparisons ( http://www.moneynet.co.uk )
Which? consumer advice ( http://www.which.co.uk )
About the Author:
Michael Hanna About Michael Michael is a keen writer, and internet marketer
living in Scotland: Contact details: E-mail: samqam@googlemail.com Phone: 0131
561 2251 Michael's Website:Gransha |
