Credit card interest rates and Bank of England interest rates

takman

venison wrote: »

B of E base rates have no bearing on cc interest rates, after all most cc standard rates are around 18% whilst base rate is 0.25% thats what you get when cc lenders are offering new customers 99 years interest free, well I exaggerate slightly. Its about time these interest free deals were scrapped and standard rates reflected base rates.
Sadly while sites like this encourage card "tarts" there isn't much chance of that happening, so you have to question the whole ethos of "money saving experts", and how they drive people into debt, an unpopular view no doubt, until you give it some thought.

Even if credit cards didn't offer any 0% deals then I doubt it would reduce interest rates much. Just look at interest rates on loans; if you borrow less than £2000 then even the best interest rates are 10% plus. So you need to consider that credit cards allow even smaller borrowing and are more expensive to provide. They also offer section 75 protection which is costly for the banks to provide.

Your idea of scrapping promotional rates is also ridiculous. Adults shouldn't have to be treated like children to stop them getting into debt. Plus why should sensible people loose out just because some people are irresponsible with money?.

What else do you propose?. Banning special offers and discounts in supermarkets because it encourages people to spend to much?. No sales allowed ever?.

eskbanker

Chrysalis wrote: »

If that happened I would just pay my debt off.

....which is fine for those in your fortunate position!

However, this isn't about stoozers and others who have the option to just pay it off, the issue is more about those who are seduced into borrowing more than they can ever afford to repay and whose only option at the end of a 0% deal is to find another one in order to continue to defer the inevitable....

Chrysalis

eskbanker, that happens with loans and mortgages as well, someone can have a low starting rate on a mortgage, rates rise then they in trouble. There is always an incentive to lend to as many people as possible as its more potential profit for the lender and the government likes it as it helps the economy.

Overall I would say for sure the 0% deals are a good thing for the consumer. Bear in mind not just anyone can grab a 0% card, you need to have a good credit history to get accepted for one.

Nebulous2

I don't think there is a direct relationship between cheap or free deals and high rates for people who can't afford it. There is a point however that people who least need it are the most creditworthy and get the best deal, whereas those who can't afford it have to pay higher rates. People having to pay higher rates for their utilities on prepayment meters is one example.

Low rates often come from a marketing budget to increase market share, or from some weird anomaly in the market. I had O2 broadband, which had pretty much the best reputation / ratings at the time. Sky's offering was distinctly mediocre in comparison. Sky bought out O2 with the price to be paid dependent on number of customers. As soon as the deal was announced O2 customers started to leave. I was given cashback, free broadband and reduced line rental for a year to signup to stay. That was a benefit of being in the right place at the right time. It didn't mean other people were paying more to subsidise me.

The market is incredibly complicated. I'm all for trying to help people who need it - both individually and as a wider society we have a responsibility to each other as well as to ourselves. I don't feel guilty about stoozing however.

RG2015

Nebulous2 wrote: »

As soon as the deal was announced O2 customers started to leave. I was given cashback, free broadband and reduced line rental for a year to signup to stay. That was a benefit of being in the right place at the right time. It didn't mean other people were paying more to subsidise me.

This may have been true for the Sky/O2 deal but it does not apply to credit card deals.

I have two years at 0% whereas other customers pay interest of 20% p.a. Clearly they are paying for my deal. The bank will be far happier if I did not repay after two years and they could collect interest from me.

It is quite clear that people less well off than me are paying more to subsidise me.

eskbanker

Chrysalis wrote: »

eskbanker, that happens with loans and mortgages as well, someone can have a low starting rate on a mortgage, rates rise then they in trouble. There is always an incentive to lend to as many people as possible as its more potential profit for the lender and the government likes it as it helps the economy.

Overall I would say for sure the 0% deals are a good thing for the consumer. Bear in mind not just anyone can grab a 0% card, you need to have a good credit history to get accepted for one.

I'm thinking of the broader picture here - yes, more lending and lower rates have benefits but only provided that the debts are repaid, but there comes a point where there's too much easily-available credit and hence the recent BoE warning: http://www.moneysavingexpert.com/news/cards/2017/06/bank-of-england-warns-lenders-about-steep-rise-in-consumer-debt

Not necessarily saying that we're heading for another 2007-style credit crunch but just observing that more and cheaper credit availability isn't always a good thing!

Nebulous2

RG2015 wrote: »

This may have been true for the Sky/O2 deal but it does not apply to credit card deals.

I have two years at 0% whereas other customers pay interest of 20% p.a. Clearly they are paying for my deal. The bank will be far happier if I did not repay after two years and they could collect interest from me.

It is quite clear that people less well off than me are paying more to subsidise me.

It isn't quite clear at all that people less well off than you are paying more to subsidise you.

Take two credit card providers. Both with a headline rate for mainstream cards of 20% One offers a 0% deal for two years and the other doesn't.

The one without the promotional rate is making more profit. The other is sacrificing profit to expand market share. It is effectively a marketing cost. It's not a case of people who cannot afford it subsidising the person on 0%

RG2015

Thanks. I had been feeling guilty that I was profiting from those who couldn't manage to pay off their credit card debt. I feel much better now I know that it is effectively a marketing cost.

[Deleted User]

takman wrote: »

Even if credit cards didn't offer any 0% deals then I doubt it would reduce interest rates much. Just look at interest rates on loans; if you borrow less than £2000 then even the best interest rates are 10% plus. So you need to consider that credit cards allow even smaller borrowing and are more expensive to provide. They also offer section 75 protection which is costly for the banks to provide.

Your idea of scrapping promotional rates is also ridiculous. Adults shouldn't have to be treated like children to stop them getting into debt. Plus why should sensible people loose out just because some people are irresponsible with money?.

What else do you propose?. Banning special offers and discounts in supermarkets because it encourages people to spend to much?. No sales allowed ever?.

You maybe too young to remember the credit squeezes in the 60's when the govt would impose a mandatory level of deposit on HP, if adults behave like children then they deserve to be treated as such, the level of consumer debt is getting to the point where it is unmanageable, the landing when it comes will be harsh and bumpy.
Just don't say you weren't warned.
I'm sure that the banks allow a certain % to cover them for the relatively few S75 claims, after all they charge retailers for the pleasure of accepting your cc as payment.