It's no secret by now that the financial world is in bad shape; a looming recession in the United States as well as the current credit crunch here in the UK means that lending and credit is hard to come by these days. A lot of people applying for loans and credit cards are being turned down and in some cases the banks are practicing strange tactics in order to get a certain breed of customer to borrow.
What is surprising to most analysts is that credit interest rates have risen by .5% despite the Bank of England dropping their base rate by .75% since December last year. Why is this happening? Well the fact that banks are struggling has obviously made them more frugal with their lending.
The increase has lead to an average rate of 17.12% and balance transfer cards haven't escaped the hike, now raising .83% taking it to 15.95% the same analysts believe the reason behind many banks raising charges is that they incurred a large loss when the penalty fee being capped at ?12 two years ago has lead to a significant drop in income. Whilst they may complain, this ruling was brought into effect by the Office of Fair Trading as many banks were accused of being aggressive with their penalties on customers.
These penalties could have been avoided if banks were not so liberal with whom they lent money to, as is the case with sub-prime mortgages in the United States, where mortgages were sold to people who knowingly could not afford them. Banks may be feeling the pinch now but with time and more careful lending we may see rates become more reasonable. Events such as the (near) nationalisation of troubled UK bank Northern Rock have not done much to help remedy the situation.
In some cases banks are contacting customers with perfect records to tempt them to take out a credit card. By getting customers who will definitely pay back the money on time they hope to stabilize the market, some customers of the bank Halifax have said they received phone calls about taking out a credit card and even offering to pre-approve an application form.
Whilst lending isn't an ideal situation for many of us credit cards and loans are vital to getting by, especially new families or home owners so whilst credit rates may not be favourable at the moment it is still worthwhile researching other card suppliers if you are looking to get a credit card so that you get the best deal for yourself.
