Interest rate increases on credit cards, do I really have a choice?

BartyBoy

Hi everyone, I have a query about credit cards and I wonder if someone can kindly give me some advice or suggestions. Many thanks in advance...

I applied for a Santander ZERO card a couple of years ago. I applied for it cos I read an article here to say how good it was. Anyway, cut the long story short, when I first received the card, Santander gave me 18.9% APR. I didn't have any issue with that rate cos I always paid off the outstanding balance by the deadline.

Then 4 months ago (June 2011), I received a letter from Santander saying I was entitled to their 0% APR promotion on balance transfer for 12 months, so I thought that came handy, and I did request for a balance transfer then.

2 months after I made a balance transfer, I received another letter from Santander saying they are going to increase the interest rate on my ZERO card from 18.9% to 21.9% from November 2011. It was kind of a shock really. Anyway, on the letter it says I can contact Santander to reject the interest rate increase, but that means I will have to close my credit card account and pay the remaining balance at the current rate.

I have just called Santander this morning to ask about rejecting the new interest rate, the guy said I could close my account now, and carry on paying the remaining outstanding balance at 0% APR til the promotion expires in May 2012. BUT THEN, any outstanding balance after May 2012 will be charged for the interest at 21.9%. So I asked the guy there was no point to close the account then if I will still be charged at 21.9%. I explained to him, I thought I would be charged at the current rate (18.9%) on any outstanding balance after May 2012. The only thing I will lose here is my ZERO card can no longer be used. The guy did not give me a straightforward answer at all, all he said was if I still want to cancel the account. I found it extremely helpless and waste of time.

To me, it doesn't seem I have an option to reject the interest rate increase at all, is that correct? or shall I speak to someone else from Santander to discuss the matter further?

Any advice or suggestions is very much appreciated.

[Deleted User]

I think the bloke on the end of the phone is wrong. If you close your account now, it will freeze interest at current rates. So you'll see out your BT period, then go to 18.9% as you say.

I can't see any reason why an active BT offer would change the normal rules. But then again, Santander set their customer services policies by use of a tombola each morning.

CLAPTON

when you received the letter about the increase, what period of time did they give you to freeze the interest rate?

in any event an increase from 18.9% to 21.9% doesn't seem massive

how much do you expect to have on the card when the 0% BT deal runs out?

BartyBoy

Thank you both for the messages...

As far as I understand from the letter, if I reject the new interest rate now I will have to close the account completely. Then the remaining balance will be charged at 18.9% until it's completely paid off (with the minimum payment each month).

Regarding the BT deal, I currently pay the minimum payment each month, and if I carry on like that, by May 2012 I should still owe Santander £3K on the ZERO card.

Shall I go back to Santander to ask again this interest rate increasing business?

PS: I used to have a Halifax Classic credit card, when I first opened the account (4-5 yrs ago) Halifax charged me 10.9% interest. But now Halifax has increased the interest to 23.9%, this is why I ended up using Santander's 0% BT to pay off my Halifax card, it was shocking and unbelievable!

chexum

BartyBoy wrote: »

Regarding the BT deal, I currently pay the minimum payment each month, and if I carry on like that, by May 2012 I should still owe Santander £3K on the ZERO card.

Shall I go back to Santander to ask again this interest rate increasing business?

I haven't thought about what happens for the opt-out when you have a specific time-limited deal going on. I'd expect every current term to be running to its end, but the frightening outcome (which would certainly be not the fairest) could be that every balance is then returned to its underlying variable rate, as you didn't keep on running with the current terms (specifically, did not allow to increase it when they saw fit)

The Zero card is very unique in that it's one of the few that do not have fx charges when you buy stuff overseas (or not in £ for that matter). Since it's no longer available for new customers (the number of these good-for-fx cards are diminishing), I would be inclined to keep it, and keep it active. But it only matters if you make frequent non-GBP purchases. You know your credit file, perhaps you can get a new 0% BT card in time before this ends?

However, paying a minimum at £3k is ... not wise to say the least. With the current interest, it would take about 27 years to pay it off, and only about a year more with the increased one, you might want to think about it.

Have a look here as well:
http://www.moneysavingexpert.com/cards/minimum-repayments-credit-card#mrcContainer

If you can (and should!) pay more than the minimum, but not *much* more, it might be worth to opt out of the increase. Otherwise, it's not making too much of a difference, and you'll get a quite nice card.

CLAPTON

well
18.9% on 3000 is about £47 per month
and 21.9% is bout £54 per month

surely the answer is to pay off a lot more than the minimum each month

BartyBoy

Hi both, thanks for your reply again.

Just out of interest, how did you calculate the interest figure? 18.9% on 3000 for example...

Many thanks!

CLAPTON

well approximately

18.9% for a year on 3000 = 3000 x 18.9%
so for a month = 3,000 x18.9%/12 .. approximately as formula for compound interest should be used but it doesn't make a great deal of difference

BartyBoy

I know i should pay more than the minimum payment each month, unfortunately the halifax classic card has left me a bad taste in your mouth and a bad finance situation. The interest on my HX card has gone more than double on me. This is why I ended up using the ZERO card to cover the HX card. Tried to apply for a loan to pay off the debt but got rejected. It's very tough here in fact... *sigh*

BartyBoy

I have just called Santander and asked them the same questions again, this time the girl who answered my call says the 0% APR for BT will stay until May 2012, then after May 2012 the interest rate will switch to my current interest rate (18.9%) cos I have now cancelled my card and closed the account. I know there are some good features of the ZERO card, but I don't really use it that often, and I cannot even remember when the last time I used it for purchasing, so perhaps I should let it go after all...