Cheap credit comes with a catch

New offers abound on cards. But look out for the small print, advises Dido Sandler

A new generation of credit cards has sent the market spinning, with unheard-of low interest rates - some just a few points above the base rate of 6.25 per cent.

Many are backed by special deals to persuade people to transfer to a new account.

Last week Abbey National became the latest to join in the card price war, slashing its Visa rate to 17.9 per cent. It joins Save & Prosper, Royal Bank of Scotland Advanta, the Co-operative Bank and other low-cost operators.

People considering switching their credit card account should, however, read the small print. "There's always a twist somewhere," said a spokeswoman from MoneyFacts, a monthly magazine with all the best savings and loan rates.

Despite claims by the newer players, RBS Advanta, Save & Prosper and MBNA, that their interest rates beat the high street banks, they use more punitive ways of charging interest.

The new card issuers impose interest on all new purchases as soon as they reach the account whenever there is an outstanding overdue balance. The high street banks, meanwhile, allow the same credit period as usual - maximum 56 days. This difference could cost high-spending customers hundreds of pounds.

One MBNA customer, Roz Matthews, only discovered this when she received her statement. "I don't usually go overdue. When I found an extra pounds 7.05 interest charge, I couldn't understand it. Then I read the terms and conditions on the back of the statement, and found they were actually within their rights," she said. "I paid off the balance, and cut up the card."

Headline interest rates, expressed in terms of annual percentage rate (APR), can also be misleading, because they do not take into account the interest-free period available to many card users.

Although the Save & Prosper Base Rate Card's APR of 11.8 per cent undercuts the high street rates by roughly half, it has no interest-free period. The RBS Mastercard, at 14.5 per cent, also incurs interest immediately.

People should also look out for rate changes after any initial cheap offer. Cheap rates on Beneficial Bank's Sky TV card, charging 13.9 per cent, expire on 23 May. Beneficial's card for National Counties Building Society, charging 14.9 per cent, runs out on 23 July. MoneyFacts says there is no indication what the level of interest will be after those dates.

Lloyds Bank, meanwhile, pulls customers in with a starter rate of 16.2 per cent for six months. However, it will only maintain this low rate if users run up debts of pounds 2,000. Otherwise, interest leaps up to 21.1 per cent APR for debts of pounds 1,000 to pounds 2,000 or 22.4 per cent for under pounds 1,000.

People should also watch out for annual fees. Cards such as Alliance & Leicester's Atlantic Visa are free only for the first year. Bank of Scotland says it levies no annual charges, but that is only if customers spend pounds 1,500 a year. Halifax does the same but the threshold is pounds 2,000.

Some cards incur extra charges. RBS/Advanta, for example, charges customers pounds 10 if minimum payment arrives more than 15 days late, and another pounds 10 if you exceed your credit limit by more than 10 per cent.

Some low-interest companies make further charges for replacement cards, duplicate statements and sales slips, changing the date of the monthly statement and bounced cheques.

Nevertheless, certain new cheap cards may remain attractive even after the hidden extras.

The question then becomes whether they will accept you. Credit scoring systems can be rigorous. In a recent well-publicised case, MBNA launched a card targeted specifically at independent financial advisers, only to turn 60 per cent of them down.

The competitive 10.8 per cent offered by the Co-op's Gold Base Rate Card is available to those with minimum pounds 20,000 income, but with a stonking pounds 120 annual fee. RBS/Advanta, at 15.9 per cent, insists on a wage of pounds 10,000 or over. Pensioners are excluded.

Of course, if you belong to the 50 per cent who use their card as a source of free credit, and pay off their bill on time every month, interest rates are not so important, but you should choose a card with no annual fee.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
Sport
footballBrighton vs Arsenal match report
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine