Customers are paying through the nose for credit- if they can get any
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.