In early 2010 credit card interest rates in the UK increased to the highest figure they’d been in twelve years.
The ‘credit crunch’ seemed to have eliminated any competitive offers in the borrowing market as providers were required to raise their credit cards’ percentage of interest.
It was suspected that this new approach has been adopted as providers become ever more worried about the current lull in employment levels. Higher interest rates will result in existing customers to more quickly pay off their debts and will also somewhat save the providers financially.
In the 1990s, credit cards were relatively new and interest rates as a result were relatively high. In 1998 the average rate was 21.1% and the bank rate was 7.25%. Since then, however, interest levels have declined and borrowing has reached a new popularity. Providers had to offer lower rates to compete with other businesses. In 2006, the average rate was at the lowest recorded percentage: just 14.8%.
The recession has meant a steady climb in rates since 2006, however, even though the bank rate has continued to decrease. The base rate is now at an all-time low: just 0.5% since last March. The average interest rate is now 18.8%, which approaches the recorded amount for 1998. Some other rates have also been increasing, with balance transfer, cash withdrawal and foreign currency transfer often being grouped. This means a larger overall fee across the field of credit card payment.
The Bank of England stated recently that the amount of ‘bad debt’ being written off credit cards has vastly increased. Banks accept that a customer’s debt will never be repaid and will subsequently write it off.
With unemployment rates reaching a new high, banks have to accept the ’striking off’ of outstanding debt as a regular occurrence.
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