This week saw the launch of another credit card advertising an actual percentage rate (APR) in excess of 35 per cent. Surprisingly, I'm not going to rant about the extortionate-looking interest rate, but focus on the positive, ie the option it gives people to rebuild their credit status.
If used responsibly, the Luma Credit Card could help to steer some consumers back to mainstream credit and away from payday lenders.
The economic recession has hit households hard, with unemployment reaching a 17-year high in February, and although the numbers have improved slightly, 8 per cent of the UK population are still without work.
Those fortunate enough to have a job have seen little if any increase in pay over the last three years, while inflation continues to take a hefty bite out of any disposable income.
The upshot is that there are now many more people with a less-than-perfect credit score, which means they are often not eligible to borrow from banks and building societies.
Even though the best-buy tables are littered with 0 per cent credit card deals for 20 months-plus and personal loan rates at a five-year low, unless you have a pristine credit history you'll be wasting your time applying for these headline deals. However, put yourself in the position of someone who used to borrow from the big names on the high street, but has since fallen into arrears while out of work, and suddenly finds they are no longer able to obtain credit from this source.
Where do you turn?
Despite there being a growing number of credit unions across the UK, it is the payday and doorstep lenders with high-profile advertising campaigns and a growing high street presence where more and more people are turning and paying a very high price for their borrowing.
The only real way to get out of this situation is to take steps to repair your credit record, and that's where the credit cards with a 35 per cent-plus APR come in.
Most credit card companies will turn you down flat if you have a history of missed and late credit payments or a county court judgment.
However, cards from Luma (powered by Capital One) and Vanquis allow UK customers who have struggled with debt previously or who have a limited credit history in the UK to apply for plastic and give them a genuine chance to turn things round.
The interest rates are well below those charged for short-term, payday loans, with Vanquis charging a representative APR of 39.9 per cent and Luma 35.9 per cent.
The maximum credit limit available when you first apply is £1,000 with Vanquis and £1,500 with Luma.
Borrowing £400 on a credit card at 39.9 per cent APR will cost you £13.55 in interest for one month, whereas the same sum borrowed from Wonga will set you back £125.48 in interest and fees at a representative APR of 4,214 per cent.
To rebuild your credit status, you need to demonstrate a history of using a credit card in a responsible manner, so if you use the card and make payments on time every month then over time your credit score will get better. If you repay the statement balance in full each month that's even better, as you'll be improving your credit score without paying any interest charges in the process.
You won't turn round your credit rating overnight, but it's an opportunity to prove that you are financially responsible, and in time could give you the ability to once again borrow at some of the lowest interest rates offered by banks and building societies.
Gloomy savings market boosted by AA bond
The rates on all savings products from instant-access, cash ISA and fixed-rate bonds have tailed off during the last few months.
Fixed-rate bond rates are down by around 0.25 per cent over the last six months, and with an increase in base rate nowhere in sight, it's going to be a further period of misery for savers.
Their cause won't be helped by the Government's new Funding for Lending scheme. Some lenders will now be able to borrow more cheaply under this scheme, which means they will have less need to offer high rates to attract funds from savers.
However, the new, three-year, fixed-rate bond from AA Savings was one of the few pieces of good news as it hit the top of the best-buy tables with a rate of 4 per cent annual equivalent rate, 0.15 per cent ahead of its nearest rival. The account can be opened online or by post with a minimum of £1 with interest paid annually.
Andrew Hagger is an independent personal finance analyst from Moneycomms.co.uk – firstname.lastname@example.org