Money Insider: Despite their high rates, these credit cards are good news
Saturday 25 August 2012
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
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Sabina Altynbekova, the girl branded 'too good looking' for volleyball, says social media obsession with her is a 'bit much'
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 Israel's propaganda machine is finally starting to misfire
- 4 Zayn Malik on Israel-Gaza: One Direction singer bombarded with Twitter death threats after posting #FreePalestine
- 5 'Hello mum, this is going to be hard for you to read ...'
The secret report that helps Israel hide facts
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...
£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...
£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...
£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000