Renewed competition in credit card market, says research

CREDIT CARD PROMOS INCREASE, BUT SO DO RATES

PROMOTIONAL offers in the credit card market are on the rise, but so too are interest rates, according to new research by Moneysupermarket.com

Consumers are benefiting from renewed competition in the marketplace, as the lengths of interest-free periods offered by providers hit record highs.

The downside for consumers, however, is that rates are also continuing to rise – with the average being 17.32 per cent.

The average interest-free period across the top best buy credit cards for balance transfers hit a high of 15.4 months, nearly three months longer than in 2007.

For consumers looking to use a card for purchases, the average period for zero per cent purchase credit cards has now risen to an average of 12.2 months.

Kevin Mountford, head of banking at Moneysupermarket.com said: “An interest-free balance transfer card or purchase card can be a great option for consumers with existing debt who need flexibility, or for those who have a big purchase coming up and need some extra time to pay it off.”

He says that the research show there is a renewed competition in the market, with providers looking to offer the best deal.

It’s not all good news for consumers though, as Kevin explains: “There is a sting in the tail. While interest free periods may be getting longer, the rates of interest being charged once they end are also increasing.

“The average annual percentage rate hit 17.32 per cent in July, up from 17.9 per cent in May.”

He added: “This makes it even more important to ensure you pay your balance off before the interest-free period ends.”

Things to look for

If you are looking to get a credit card, don’t be blinded by the promotional offers. Here are some things to look out for:

Low, fixed rate. A low, fixed rate will mean you are guaranteed a specific interest payment each month, and – depending on what you use the card for, you will be able to work out what the charges will be. Often, however, you will pay an annual fee for the privilege.

Introductory offers. Some cards carry attractive introductory rates that can quickly increase during the first six months. These cards might be best for consumers who need a credit card for an expensive one-off purchase that they are sure they will be able to pay off fairly soon.

This article was written by Mark Hooson, who writes for the financial team at Moneysupermarket.com about consumer news and issues.