Credit crunch hits ‘rate tarts’

The escalating credit crunch that is overtaking the UK market is beginning to take its toll on users of credit cards, with those who have switched their card provider to take advantage of cut price deals in recent times about to be hit hard in the pocket.

The market has long enticed credit card users to switch accounts regularly in order to reap the rewards of introductory special deals, but the financial gloom is having an effect on suppliers that may soon see such moves being penalised.
 
Estimates say that between April and October of 2007, more than five million users switched their credit card deal from one provider to another, with many taking up zero percentage deals in the process and thus cutting back on monthly interest repayments, but these deals were only for fixed periods of a number of months, and with expiry dates approaching the interest accrued may be about to rocket beyond expected levels.

Repayment rate on the rise

Analysis site MoneyExpert.com explains that annual percentage rate (APR) on balance transfers has, on average, risen to just under 16.5 percent in the year since August 2007, when it stood at 15.11 percent.

This who switch on a regular basis – known in the industry as ‘rate tarts’ – are about to be affected by increased repayment levels as lenders look to tighten their belts in the face of the ongoing crisis.

According to MoneyExpert.com, a balance of £3,000 raised from a transfer results in just under £495 per year in interest repayments, assuming the balance is not repaid in full, and Lloyds TSB- one of the UK big four banks, has reported that ‘rate tarts’ are a species on the decline in the current economic climate.

Britain in financial turmoil

The credit crunch first began to hit spending in Britain two years ago, and has escalated to a level where consumer spending has hit a record low, bank interest rates have fallen and savings are reaping no real rewards. Petrol and diesel are rising almost by the day to unheard of levels, and the retail price index is showing a week’s average shopping bill as increasing as the year goes on.

The UK house market is in turmoil, with builders slashing staff and reducing build projections to the lowest levels on record, and the population simply unable to afford to buy new houses despite the tumbling average purchase price.

Banks report that, in terms of credit cards, just one fifth of applicants were looking for the best rate available, and three fifths were looking for longer term deals with guarantees.