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Interest free credit cards have had their day

Tue, 18 Oct 2005

One of the biggest selling points for credit card providers are the interest free deals they offer. The market has now become saturated with such deals and lenders are now cracking down on what they call ‘rate tarts’ and are adding extra charges where users least expect them.

Egg, were one of the first companies in 2000 to launch an interest free card on balances for the first nine months. This was a godsend for those who do not clear their balances at the end of each month, because they had nine months in which to do it.

For the wise credit card user, when one interest free period ended a new provider would be sought with an equally attractive offer of zero per cent interest. This became a game of swapping from one lender offering zero per cent interest to another.

This has led to credit card companies feeling the pinch on their profit margins and some experts say that it costs the industry more than £1 billion a year. As a result lenders are finding ways to make this loss back up. One way is the reintroduction of annual fees. Next month will see MBNA charging its customers £25 per year for the use of the card.

Stuart Glendinning from www.moneysupermarket.com says, "Annual fees were a thing of the past but credit card firms are desperate to make money from the zero per cent deals. Although only MBNA has so far reintroduced the fee, it is surprising how quickly other companies follow suit."

Barclaycard, last year imposed a ‘balance transfer fee’ if you paid off one per cent of the balance you are moving and other lenders have followed suit.

Lenders such as Virgin Money, Halifax One, Mint, MBNA and Egg are all charging as much as £50 to transfer a balance from one card to another.

There are some lenders who are not looking to impose a fee. These are Marks and Spencer, Yorkshire Bank, More Than and Marbles.

A leading high street lender, Nationwide, recently withdrew its zero per cent balance transfer deal.

Nick White from www.uswitch.com says, "This news sound the death knell of the true zero per cent balance transfer deals."

Glendinning adds, "The balance transfer fee caught on quickly. But in the same manner, card holders could be hit with other charges, such as annual fees."

Some lenders have hidden in their terms and conditions, clauses that allow them to stop people using their zero per cent deals if they make late payments. This would mean the cardholder would have to pay the standard rate on the entire balance, thus increasing the lenders profits. Lenders who have these conditions are Virgin Money, Egg and MBNA.
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