Credit cards: 0% transfers carry high costs

Monday, 20 July 2009 02:25

Credit card rate tarts are not likely to find relief anytime soon as deals to help pay down debt have been cut.

Research from Moneyexpert.com shows that zero per cent purchase deals have been slashed by 20 per cent and the period of free balance transfers has been reduced to an average of nine months.

The cuts have come as the average interest rate on a credit card has reached an all-time high of 18 per cent- despite Bank of England lowering the base rate.

The Bank expects the credit card rate hike to continue after a surge in default payments has led to risk aversion on the side of credit providers.

While existing debt becomes more expensive to pay off, customers may find difficulty using methods such as transferring an outstanding balance to another card to avoid the cost of high interest.

"There's a real danger of a vicious circle here for borrowers reliant on zero per cent deals. As the lengths of deals are cut they'll have to make more applications and risk more rejections making their credit histories worse, and limiting the chances they have of getting credit in the future," said head of research at Moneyexpert.com, Pierre Williams.

Zero per cent purchase fees, which allow customers to pay zero per cent interest on new purchases for a set term after signing up for a card are often recommended to those with cash flow problems.

Decreasing access to these deals is a consequence of the circumstances as well. Presently, 134 credit cards offer introductory new purchase rates of zero per cent, down from 165 in July 2008.

No major UK lenders have reported plans to increase the availability of credit cards and personal loans, according to the Bank of England.

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