Business Personal Finance

Wednesday 18 September 2019

Majority of people 'don't know what interest rate is on their credit cards'

Costly: Shoppers on Dublin’s Grafton Street. Many consumers do not understand how interest works on their credit card balances.
Costly: Shoppers on Dublin’s Grafton Street. Many consumers do not understand how interest works on their credit card balances.
Charlie Weston

Charlie Weston

Most people do not know what interest rate they are paying on their credit cards.

This is despite the fact a majority of people say they rely on a credit card for making purchases, according to a survey commissioned by the Irish League of Credit Unions and carried out by iReach.

Almost six out of 10 card users say they are not aware of the interest they pay on an outstanding balance.

More women than men admit to being poorly informed about the interest rates.

When people said they were aware of the interest, many got it wrong. Some 20pc of people thought they were paying between 6pc and 10pc.

However, card interest rates in this country typically range between 13pc and 23pc.

Consumers were also completely at sea when it comes to how interest is applied.

Four out of 10 incorrectly said they would have no interest imposed if they pay the minimum monthly amount.

More than a quarter of the 1,000 people questioned by iReach correctly said they pay interest on the full balance from the date of the transaction to the date of payment, as well as interest on the outstanding balance.

One in eight had no idea how much interest they would pay after paying the minimum amount due.

Most people feel credit card companies do not put enough effort into explaining their interest rates.

Some 68pc agreed that people lack an understanding of how the interest works.

The vast majority of credit card owners said they will use their card for monthly ad-hoc purchases this year.

A minority said they will use it to fund a planned holiday, while only 11pc said they had made a new year resolution to throw the card away.

Based on their previous credit card habits, two-thirds said they would clear the entire balance every month.

Head of communications at the Irish League of Credit Unions Paul Bailey said part of the ethos of credit unions is financial education and empowerment.

He added: "We are concerned about the lack of awareness around credit-card interest, especially given the popularity of credit cards with adults and the tendency to use them on a monthly basis.

"We would strongly urge consumers to, at the very least, really inform themselves about the rates of interest they are paying and, importantly, when they will incur interest."

The website of the Competition and Consumer Protection Commission has details about credit card interest and how the cards work.

Irish Independent

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