Credit card users hit with default charges

All credit card borrowers are being hit with increasing interest rates in response to lenders cutting penalties for users who default on their payments.

In April 2006 the Office of Fair Trading said that default charges on credit cards were excessive and suggested that the fees should not be higher than £12.

However, lenders made up the lost revenue by increasing rates and charges for other customers.

The Bank of England base rate of five per cent is a third of the average interest rate of 16.4 per cent, leaving a substantial profit for lenders.

Customers who are most likely to be affected are those who repay the minimum on their cards, according to Moneyfacts.co.uk analyst Michelle Slade.

Ms Slade commented: “Anyone with a balance of £5,000 repaying just 2.5 per cent per month will end up paying an additional £755 in interest from the 1.5 per cent increase in purchase rates.”

However, she concluded that borrowers with a good credit history could still find good deals.

Tags: michelle slade, lenders cutting penalties, default charges, Subprime lending, finance, cent increase, April, analyst michelle slade