There have been numerous reports of late that have shown that the cost of borrowing on a credit card was on the up, and whilst the interest rate is now at the same level as it was in 2006 the cost of borrowing on credit cards, and many other forms of finance, has rocketed during this time. In fact, at a time when household finances are already highly strained and a range of living cost rises and bill hikes have left many already unable to cope with rising monthly repayments and outgoings.

With the financial climate in the dire state that it is in many credit card firms and lenders are rushing to increase the cost of borrowing, and this means that consumes are set to pay out even more on the cost of borrowing in addition to paying more for other items such as food, petrol, energy bills, and more. Credit cards have always been dubbed an expensive way of borrowing money in the past for those that do not repay their balance in full, and some officials have claimed that credit card firms are continually looking for new and inventive ways to charge consumers more without making it obvious.

One official recently said that it was unlikely that the credit card firms would go over the top with the headline rate, as this is what they use in advertising to try and attraction customers in the first place. However, there are other ways in which credit card firms increase the cost of borrowing and consumers need to look out for these. This includes the fees charged on cash withdrawals and cash transactions, annual fees charged on the card, foreign transaction fees and charges, and with balance transfer cards the cost of transferring a balance.

The industry official said: “It is nearly unprece-dented to see so many providers raise their purchase rates over such a short period. Generally, hiking the purchase rate is considered a last resort for lenders, as they have to put this headline rate in their adverts. If they need extra cash, they will normally do other things, like increase the fees for transferring a debt from another card or for using the card at an ATM to withdraw cash.”

However, some say that soon banks will be left with no other option but to increase their headline rate if they want to raise the cost of borrowing, with one official stating: “Banks, as a result of the credit crunch, are short of money and can only find this cash by either cutting their costs or increasing profit margins. Since the back-end of last year, they have been dashing around trying to increase the profit margin through less noticeable means, but they are now only left with raising the headline rate. It just shows the dire straits they are in.”

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