The UK Cards Association's Response to Recent Press Coverage on Credit Card Interest Rates
Credit card companies face the challenge of running their businesses in an increasingly regulated market, when the risk of lending to individuals in uncertain economic conditions is invariably very high and at a time when cardholders are increasingly paying off their balances in full. Despite all this there are still an excellent range of products available.
However, the difficult environment is why some card issuers have dropped out of the market and others have decided to only offer new accounts to customers who have a current account relationship with them. But, even in this current climate of less attractive deals, some companies are still offering 0% deals - giving UK consumers a wide choice of products. Credit cards remain much cheaper than many less scrupulous and less-regulated lenders.
There is no direct correlation between base rates and credit card APRs. Even when base rates fall, the costs of fraud and bad debt and the cost of operating an unsecured open ended line of credit continue, so standard credit card rates may not come down.
According to the latest Bank of England statistics (end of Jan), the average APR on a credit card is 16.4%. This is weighted according to size of business, whereas we understand that figures quoted by Moneyfacts (and reported widely in the press this week) calculate an average across all products regardless of market share; therefore their figure has usually been historically higher.
Industry research shows that between January and October 2009, of the 66 million credit card accounts in the UK, 10.6 million accounts were re-priced, with around 40% of these having their interest rate lowered.
It’s worth remembering that the very latest figures show that 61% of customers don’t pay any interest at all as they pay in full every month and an APR is just one of the things you should look at when choosing a credit card - it all depends how you want to use the card.
Because of the way APRs are calculated - an APR will increase if the card has an annual fee - this is why our advice is that you shouldn't just look at the headline APR when judging whether a particular credit card is right for you. The Summary Box, an industry initiative, provides a simple and comprehensive way of comparing all charging features of a credit card - not just the APR - and can help customers to really gauge whether a specific credit card product is right for the way they want to use it.
