The Bank of England has cut interest rates to 3% - but credit card companies are unlikely to follow the lead and cut their interest rates. There has always been a massive discrepancy between the Bank of England base rate and the rate credit card providers charge, but now, accoring to Moneyfacts, consumers are paying an average of of more than 5 times the base rate.
This is a huge figure - if you’re a student and you’re looking at how expensive credit cards are, or anyone else for that matter. to pay an average of just under 17% equates to potentially huge interest charges on outstanding balances. If you have £1000 outstanding and you don’t pay any of it off for a year (you have to always pay off a minimum but it’s so small that it doesn’t dent the overall balance) then you’re going to get hit with around £170 worth of interest charges.
So why don’t credit card companies cut their rates - well, in a nutshell, they don’t have to! If they have enough customers and the market is all fairly even, then they’re happy charging what they do. According to sources “lenders only cut rates to attract customers”. It needs some kind of price war, or one of the credit card companies to really want to get a bigger share of the market to see things change.
There are a companies though where the APR is going to decrease. Co-op has a credit card that is linked to the base rate apparently, and their customers will benefit from this.
Another explanation for why credit card providers won’t cut their rates is offered by Barclays - who say that the primary factor in their pricing is risk, not the cost of money, so the cut will not have an immediate effect.
I don’t know about you - but charging an interest rate more than 5 times the base rate seems to be suggesting there is a whole lot of risk!!
To view details of a few credit card providers and the APR they are charging visit the credit card
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