Interest rates
Myth: Credit card APRs are strongly related to base rate
Reality: This is not true. There is in fact no direct link between base rates and credit cards APRs. There are many different elements that comprise the cost of a credit card. The bank base rate is a relatively small part of the total cost of operating a credit card.
Credit card companies are in the business of making a profit – that is the only way they can offer truly competitive deals to their customers. Even in the current climate of less attractive deals, companies are still offering 0% deals. Credit cards remain much cheaper than many less scrupulous and less-regulated lenders.
Myth: Credit cards are the biggest contributor to personal debt in this country
Reality: At the end of 2010 the amount that the UK had outstanding on their credit cards came to around £58 billion (and falling) of the £1.4 trillion consumer debt in the UK, or around 3.7% of the total. Around £15 billion of this credit card is repaid in the month it was borrowed or being borrowed at 0%and therefore does not attract any interest.
The bulk of consumer debt is related to mortgages (85%).
By comparison, as of July 2011, student loans accounted for more than £41 billion.
Myth: In an economic downturn cardholders are turning towards credit cards to see them through
Reality: This is not true. After many years of growth credit card spending peaked in 2005 and has not shown any growth since. Cardholders are borrowing less and paying off more of their debt.
Myth: In an economic downturn credit card holders are taking out more and more cash advances
Reality: This is not the case. Cash advances on credit cards have steadily fallen since peaking in 2005 and are now at levels last seen in the 1990s.
Myth: The APR tells me how much my credit card will cost me
Reality: The APR tells you how much your credit card will cost if you borrow up to the credit limit on day one and pay it back in twelve equal instalments without making any further expenditure, which is highly unlikely behaviour. The APR is okay but not perfect for comparing credit cards, nor very good for comparing the cost of a credit card with other types of lending such as personal loan or a mortgage.
Myth: It is very difficult to compare one credit card against another
Reality: All cards are promoted using the Summary Box which shows the key features of a credit card in an easily comparable table. You will find versions of the Summary Box in all credit card marketing literature, on credit card statements, with credit card cheques, and in marketing literature for prepaid cards. In future, this will be supplemented by the SECCI, a similar summary that is required as a result of European legislation.
Myth: The credit card industry is a free-for-all where lenders can do more or less what they want
Reality: The UK credit industry is one of the most regulated industries in the country where strict rules and regulations are applied
.jpg)
.jpg)
