Credit card comparison burden left to consumers

Debt-laden consumers hit hardest by credit card increases

By UK CreditCards.com

Credit card comparison shopping more importantWhile making the decision not to borrow any more on credit cards is relatively straightforward, others have to battle with existing debts, making the need to shop around for the best available credit card deal even greater than ever.

Figures released by the British Bankers' Association (BBA) recently have highlighted how consumers continue to be affected by the global economic downturn. The recession might officially be over, but new credit card spending was found to have fallen by 3.7% in January when compared with levels seen in 2009. Meanwhile, total consumer credit has declined by 1.8% over the past year, with BBA statistics director David Dooks suggesting this is in part due to a strengthening resolve among Britons to reduce borrowing in favour of saving.

Why is credit card spending on the wane?
According to Mr Dooks, weak demand for consumer credit in January can be ascribed to a lack of desire among consumers to spend on the high street. Mr Dooks believes the weather is one of the reasons behind this, while Global Insight chief economist Howard Archer notes that falling consumer confidence is another causative factor. In an interview with the Guardian, the expert also points to restrictions on credit imposed by banks concerned about the heightened risks associated with borrowing.

Why are credit card rates being increased?
At a time when consumer demand for credit is falling, customers should be able to rely on providers to reduce rates on their credit card products to stimulate the market. However, Phil Perry, director of financial advisory firm Ark Financial Planning, believes consumers are still paying for mistakes made by banks in the lead-up to the credit crunch. It is a continuing attempt to recoup lost money that is influencing the decision of lenders to increase the cost of borrowing and reducing the availability of credit, he says.

Where does this leave consumers?
While Mr Perry believes lenders will contend that they are "doing consumers a favour" by raising rates and stopping them from borrowing, he is not convinced everyone will be thankful. Those hardest hit in this environment will not be individuals looking to borrow money to fund a new purchase, but those already in debt and struggling to make their monthly repayments. "It is people who are still in that vicious circle that are going to get stung," he confirmed. For many, tightened lending conditions have left credit cards as the only possible avenue to obtain credit, and the decision of lenders to increase rates means they are now paying significantly more interest than they bargained for. As a result, the search for the best credit card deal has become more significant than ever.

 

Published: 2 March 2010