Recent reports from CreditAction and the National Debtline
appear to show that UK consumers are becoming more financially
aware and are looking to reduce their levels of personal debt
which have spiraled seemingly out of control over the past few
years. Despite the industry wide introduction last
year of the "honesty box" in all credit card statements designed
to outline the costs of loans and any additional charges, it
seems that the activities of some of the financial services,
especially certain credit card companies are misleading
consumers and making it difficult to determine the true costs of
many financial products. The consumer group
Which? has launched an attack
against the interest rates quoted by credit card companies. The
problem revolves around the fact that there are around 20
different methods used by lenders to calculate interest charges
and these make it extremely difficult for consumers to determine
which credit card is cheapest, and have a huge impact on the
amount that is ultimately repayable. Which? states that, "if you
had two cards with the same interest rate and used them in
exactly the same way, one could end up costing over twice as
much as the other just because it calculated your interest
differently."
Moneynet chief executive,
Richard Brown, said, "Consumers are led to believe that the
cheapest loan is the one with the lowest APR. But this is far
from the truth - borrowers should be aware that a loan package
does not always do what it says on the tin." Martin
Coles, editor of Which?, said, "It's ludicrous that a card with
a lower interest rate can cost more than one with a higher
rate." Which? cite an example of borrowing £2,800
over a year and then paying in full every four months. With a
Cahoot credit card, that has an interest rate of 11.8%, the cost
would be £40, while borrowing through HSBC at 13.9% would cost
£38 despite the higher interest rate. Moneynet
provide an even starker example. A £7000 loan over five years
including PPI, taken out from the RAC at 6.5% when compared with
the same loan at 6.7% from the Nationwide could lead to an
additional expense of £1,846 over the term of the agreement,
despite the RAC having a lower headline rate. The
reason for the problems is that the APR generally used to
compare products is simply a measure of the cost of the credit,
whilst not taking into account other factors such as add ons
like payment protection insurance (PPI), early repayment
penalties, or when the card company actually starts and stops
charging interest. Richard Brown states, "This
enables them to advertise what looks like a competitive rate to
attract customers. Then once the applicant is convinced they
have found a great deal, the commission-hungry provider will
make every attempt to sell them PPI, thus increasing their
margin via the back door." The Office of Fair Trading
is currently investigating the fees charged by two of the
biggest credit card providers, which it claims mean that
consumers ultimately pay more for the goods they buy.
Which? has requested that the credit card industry uses one
standard way to charge interest so consumers really can choose
the cheapest card. However until this happens and a more
transparent means of comparing credit cards is implemented
across the board, consumers are urged to look beyond the
attention grabbing APR and ensure they get all the facts prior
to taking out any financial agreement.
Disclaimer: All information contained in this article, is
for general information purposes only and should not be
construed as advice under the Financial Services Act 1986.
You are strongly advised to take appropriate
professional and legal advice before entering into any binding
contracts. Useful resources: Moneynet financial
comparisons (
http://www.moneynet.co.uk ) Which? consumer
advice (
http://www.which.co.uk )
About the author:
Author: Michael Hanna
About Michael
Michael is a keen writer, and internet marketer living in
Scotland:
Contact details:
E-mail: samqam@googlemail.com Phone: 0131 561 2251
Michael's Website:
Gransha
