Customers are paying through the nose for credit- if they can get anyMarch 2nd, 2012 • 6 Comments
It seems credit is so hard to come by these days that a growing number of people are applying for credit cards, even if that credit comes at a high price, with 1.5 million borrowers taking out high interest cards in 2011.
Vanquis Bank, part of Provident Financial, typically lends to consumers who have been previously turned down by other lenders, and charges them handsomely for the privilege. Last year, the bank saw 1.5 million applications for credit cards, a massive 27% rise. But in these times of tightened lending, even Vanquis say they turned down four in every five applicants.
It is little wonder then, that consumers are turning to higher and higher rate credit cards, or using expensive overdrafts to make ends meet.
Figures released by the Bank of England show that the average ‘agreed’ overdraft rate in January was 19.51%, the highest level since the Bank’s records began 20 years ago, and almost 40 times higher than thecurrent record low base rate of 0.5%. This would mean a £1,000 overdraft would cost £195.10 a year in interest charges.
Furthermore, the average credit card rate is now 17.32%, which is actually 1.59% higher than it was in March 2009 when the base rate was first cut down to 0.5%.
In complete contrast, the average rate for an instant access savings account has actually risen by 0.02% to 0.2% per annum. But still, that same £1,000 that would earn a bank £195 in overdraft interest? They only need pay out £2 a year in interest to savers.
So why is it so hard and so expensive to get credit? You know the answer to this already, don’t you? The banks need to make profits, presumably so they can cover their bonuses and tax avoidance planning fees.
The five largest banks in the UK – HSBC, Santander, Barclays, Lloyds and Royal Bank of Scotland – collectively made total profits of £10.7billion from their high-street operations last year. Provident Financial also turned a tidy profit.
Facts and Figures, someone’s been taking night classes.
banks need to make a profit. people need the credit. simple economics. demand and supply.
Why the fuck do you need credit? What the fuck are you spending your money on?
STOP FUCKING SPENDING MONEY YOU DON’T HAVE ON SHIT YOU DON’T FUCKING NEED!
……exactly what I’ll say to the little twats that’ll queue up for the IPAD 3 in a couple of weeks
Another issue being that if 100 people put £1000 in a savings account then 12 months down the line its almost certain that they’ll get it back (even if the bank goes bust its still government backed to an extent). However if the bank lends 100 people £1000 then 12 months down the line it’s entirely possible that a proportion of them will have defaulted on the loan and the bank loses money.
In essence its fair riskier for a bank to lend money to you than it is for you to lend money to the bank therefore there is a necessity for higher interest rates due to the increased risk premium.
If I was mayor things would be different