Credit card customers lose free borrowing in new hike
Bank of Ireland (BoI) is to drastically increase the cost of borrowing for some credit card customers.
Customers withdrawing cash from an ATM will now have to pay interest from the moment they borrow the money. They were previously able to borrow interest-free if they repaid their bill on time.
The country's biggest lender will scrap the free borrowing period from mid-March, imposing a 26pc annualised rate on cash withdrawals. The move will hit many people who have become used to taking out money at the beginning of the month before their wages have been paid.
The latest increase in charges reinforces the fact that credit cards are one of the most expensive ways to borrow cash.
There is now no way to avoid paying interest on cash withdrawals using a BoI credit card -- unless the consumer treats it like a bank account and lodges money into it before withdrawing it.
The bank has defended the move, saying: "A credit card is primarily a payments device, not a lending facility."
A spokeswoman said the move brought it in line with the rest of the market, although not all lenders have followed suit. AIB, the country's second-largest lender, does not charge interest on cash withdrawals if cardholders pay off their balance in full every month.
Similarly, Permanent TSB does not apply interest on the transaction if the balance is paid off in full every month.
All three banks, plus Ulster Bank, charge fees for each withdrawal made using a credit card, on top of steep interest rates. The highest is charged by Ulster Bank while the lowest is AIB.
"Taking out cash using your credit card has become very expensive and we urge consumers to use it as an absolute last resort," said David Kerr, of price comparison site Bonkers.ie.
"Interest is generally charged from day one, and this is compounded by the fact that the interest rate is exceptionally high." Mr Kerr noted that a pre-arranged overdraft should cut the cost of borrowing in half.
Credit card owners, he said, should also pay for purchases directly with their cards rather than first taking out cash to make the purchase. This is because purchases made with the card are far less heavily penalised than cash withdrawals.
They usually attract a lower interest rate, and no interest at all if the balance is paid off in full each month.