Consumer group Moneyfacts has reported a major decline for credit card perks as consumers look to borrow as the Christmas spending begins. Friday 23rd November sees Black Friday closely followed on the 26th by Cyber Monday and with consumers gearing up for a spending bonanza it seems slightly disappointing that lenders would look to do this at this time. Perhaps as a consumer it is now an ideal time to consider an unsecured loan, which continue to have some extremely competitive rates.
So what exactly is going on? Well firstly it seems that the length of balance transfer credit card terms is getting shorter. On average people need to pay off their debts 6 months earlier to avoid interest charges, based on the longest deal available today compared to a year ago, analysis by Moneyfacts found.
Secondly it seems that at the same time, balance transfer fees are on the rise, so now borrowers are paying more to shift their balance from one card to the other. Indeed data from Moneyfacts confirms that the average balance transfer fee has risen to 2.25%, up from 2.04% in January and 2.14% a year ago.
So since the start of October 2018, Bank of Scotland, Halifax, Barclaycard, Tesco Bank, Lloyds Bank, and Virgin Money have all cut their interest-free balance transfer offers or their 0% purchase offers. The latter, obviously around this time of year gives you the benefit of being able to buy things, and repay the balance without any interest. Whilst the longest 0% term you can get is still much better than a decade ago (29 months nowadays as opposed to 12 months in 2008), it’s still a decline on a year ago.
Finance expert at Moneyfacts Rachel Springall said: “In the last month alone we have seen several providers slash their interest-free deals, which has included some of the longest deals around. For instance, Lloyds Bank has slashed its 34-month interest-free balance transfer card to 32 months, while just last week, Tesco Bank and Barclaycard cut their 33-month deals to 30 and 32 months respectively, leaving just one 0% offer for 33 months in the market (MBNA).
“The cost to move debt is also on the rise, and with economic uncertainties just around the corner it wouldn’t be surprising to see balance transfer fees rise further still as providers increase the cost to sustain other card features. One of the longest interest-free credit cards available today comes from MBNA at 33 months, but it would cost borrowers £99.50 upfront (1.99%) based on a £5,000 debt.”
“Credit cards should not be treated as a crutch for debt, but if consumers are using them to make ends meet, it is a worrying sign that the offers are becoming less competitive, especially if household circumstances change and they have no means to pay for financial emergencies,” Springall said.
Thus with the current best buy unsecured loans deal at 2.7% from Sainsburys Bank on borrowing between £7,500-£15,000, these ultra-low rates may be a more simple and cost effective way of borrowing ready for the Christmas spending