Credit card interest rates surge as spending drops
Published 13/07/2011 | 05:00
INTEREST rates on credit cards are at the highest levels they have been for more than a decade, a new report shows.
Average interest rates for making a purchase on your plastic have now hit 19pc -- the highest rate in 13 years.
Credit card providers have pushed interest rates up by 2pc in the first few months of this year alone, according to research by market research group Mintel.
Rates have been hiked in a bid to discourage people building up large balances.
Card companies are raising their rates to shore up losses from those who are defaulting.
Mintel said there was also evidence that card companies have been lowering consumers' credit limits in a bid to stop debts getting out of control.
"Evidence suggests that interest rates on credit cards are becoming increasingly expensive," David Pasley, author of the report, said.
Rising rates are putting people off using credit cards with a big switch to debit cards, where you can only spend what you have in your current account, the study notes.
Ulster Bank has one of the highest rates for card purchases at 22.6pc on its Classic card, according to comparison data gathered by the National Consumer Agency (NCA). MBNA charges 21.4pc for purchases on its Standard card. The NCA figures do not include information on some existing cards, a number of which have higher interest rates.
The Mintel research, a copy of which has been seen by the Irish Independent, also shows most people are restricting themselves to putting just €150 worth of purchases on their card a month.
Consumers have radically cut what they put on their cards as they are keen to watch every cent, the report notes.
Spending on credit cards has collapsed by 15pc since 2009 as consumers move away from using such an expensive form of payment.
"With the high level of interest on many credit cards, consumers see eliminating their usage as an effective way of reducing the amount of money they must pay out, while also making them more likely to live within their means," the report said.
There are now twice as many debit cards as credit cards, the Irish Payments Services Organisation said last week.
This is partly because consumers have been cutting up their credit cards -- the number of personal credit cards in issue has dropped by 100,000 in the past year, separate Central Bank figures have shown.
And consumers are also paying down credit card debt, with €200m paid off credit cards in the past year alone, the Central Bank figures show.
Women tend to use credit cards more than men, with groceries one of the top items bought using cards, the Mintel report found.
Six out of 10 people are being turned down when they make a credit card application, prompting many to use prepaid cards. Money is loaded on to these cards before a purchase is made.