It seems that there are more and more attractive credit card deals being launched almost weekly. Since the 2008 financial crisis and a much more cautious approach to lending by the banks, it seems credit card providers have somewhat jumped into the gap that has been left. The unsecured loans offered via credit cards seem to be flexible, easier to obtain and some even give you cash-back incentives. But is it really your flexible friend?
Credit cards can be almost tailor made to suit your current financial circumstances, so even those with less than perfect credit may still be eligible for a credit card, be it at a much larger interest rate and with more restriction. However, if you are late with a payment or miss one altogether, then this can lead to numerous issues, including reverting back to standard APR and a huge rise in repayments. A credit card that offers fee free balance transfers or long interest free periods is all very well and good, but you must ensure that you follow and stick to the rules, or terms and conditions.
It isn’t after-all free money, you must ensure that you repay the debt each month else the lender will move you back to the standard APR which is at a much higher interest rate.
The average APR is now 22.8%, compared to 15.5% before the financial crisis. All banks used to charge around the same amount of 14.9% APR, but they realise that credit cards can be lucrative business. The APR is now often used to subsidise and promote special offers as they know that people will always fail to repay. Thus a repayment plan of 0% compared to that of 22.8% is potentially hundreds if not thousands of pounds in extra interest, and could risk putting you further into debt. This in turn can harm your credit rating and impact on your ability to obtain any further borrowing in the future.
So always read the small print. It is necessary so you fully understand the consequences should you fail to meet a repayment or wish to change something. Make sure you understand the fees and penalties that may be applied to your account, and that you are aware of when your promotional rates and offers are ending. Keep an eye on comparison websites as these often highlight the best deals, and make sure you know who is offering the most competitive deals as a transfer may always be an option.
The last thing that you want to do it to fall into more debt, so always make sure that you can reasonably afford the amount you wish to borrow. If a monthly set amount works better for you then maybe an unsecured loan would be better. Whatever your financial requirements, always shop around and make sure you fully understand the consequences if you fail to keep up repayments.