Credit card rates snowball at Christmas as cost-of-living crisis bites

Don’t spend Christmas in the red: Credit card rates hit 23 year high as buy-now- pay-later lenders lure cash-strapped families

  • Credit card rates hit 23-year high and overdraft charges also peak at 33.84%
  • Borrowing £500 for a year will now typically cost you £594.61 in interest charges
  • It comes as soaring energy and fuel prices send inflation sky rocketing
  • Shoppers bombarded with offers from unregulated ‘buy-now, pay-later’ 企業
  • 3.2 million families face financial crisis this winter due to cost of living crunch
  • Christmas shoppers face being clobbered by snowballing credit charges as the cost- of-living crisis bites this winter.

    Spenders are on the cusp of the biggest squeeze for a decade as soaring energy and fuel prices send inflation skyrocketing.

    結果として, households have already cut back on saving and turned to plastic at the highest level for more than a year.

    Households have already cut back on saving and turned to plastic at the highest rate for more than a year

    Households have already cut back on saving and turned to plastic at the highest rate for more than a year

    その間, 同時に, credit card interest rates have hit a 23-year high and overdraft charges have also peaked at 33.84 パーセント.

    Christmas spenders are also being bombarded with offers from controversial and unregulated ‘buy-now, pay-later’ 企業.

    Research from debt charity StepChange also today reveals that nearly half of shoppers who intend to borrow for Christmas expect to spend at least six months paying it off — putting many at risk of falling into problem debt.

    Charity spokesman Sue Anderson adds: ‘Credit cards and buy-now, pay-later are likely to account for the lion’s share of the borrowing this year.

    ‘Both potentially create a risk of people not paying back as quickly as they intend, and finding that their exposure to debt escalates.

    Gifts on plastic

    Credit card rates have continued to rise despite the Bank of England base rate remaining fixed at a record low of 0.1 per cent — meaning banks can still borrow cheaply themselves.

    Nearly half of shoppers who intend to borrow for Christmas expect to spend at least six months paying it off

    Nearly half of shoppers who intend to borrow for Christmas expect to spend at least six months paying it off

    Bank of England figures published last week reveal that average interest rates on credit cards have slowly crept up to 21.49 からのパーセント 20.78 per cent at the start of the pandemic in March last year.

    It means the cost of credit is the highest since 1998. Figures from investment service Hargreaves Lansdown show a borrower putting £500 on plastic this Christmas, and making minimum repayments each month, would take eight years and nine months to pay off the debt — a total of £549 in interest.

    Whereas a spender putting the same sum on their credit card when rates were at a low of 14.8 のパーセント 2004, would have paid the bill off in six years and eight months — and paid just £251 of interest.

    Experts are now warning that the credit card is making a comeback — after lockdown restrictions helped many build up a savings buffer.

    Laura Suter, head of personal finance at investment broker AJ Bell, 言う: ‘We’re already seeing spending creep up, with more people using credit cards in October, borrowing £600 million in the month — the highest since July 2020.

    Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, 追加します: ‘The spending squeeze has helped to spark the return of the credit card, and a slowdown in savings.

    Delaying paying

    The Bank of England this week said inflation would exceed 5 per cent next year — putting household budgets under pressure.

    Citizens Advice found last month as many as 3.2 million families were facing financial crisis this winter as a result of the cost-of-living crunch.

    The charity’s research also reveals that nearly one in ten are planning to use interest-free buy-now, pay-later lending for Christmas shopping.

    Borrowers hit: Credit card interest rates have hit a 23-year high and overdraft charges have also peaked at 33.84%

    Borrowers hit: Credit card interest rates have hit a 23-year high and overdraft charges have also peaked at 33.84%

    Campaigners and experts fear the relentless promotion of the credit is encouraging shoppers to spend more than they can afford.

    Yet because the sector is still not regulated, borrowers have less protection than if they used credit cards or overdrafts.

    City watchdog the Financial Conduct Authority (FCA) said in February that the booming sector needed urgent regulation to protect shoppers.

    Buy-now, pay-later firms such as Klarna and Clearpay let shoppers put off paying for products in full — and pay in instalments instead.

    Credit card rates have continued to rise despite the Bank of England base rate remaining fixed at a record low of 0.1%

    Credit card rates have continued to rise despite the Bank of England base rate remaining fixed at a record low of 0.1%

    But if repayments are missed, spenders can face late fees of up to £12 and their credit scores can suffer, making it harder to borrow in the future. Unpaid bills can also be passed on to debt collectors.

    Research in October found nearly half of buy-now, pay-later customers had fallen behind on payments and close to a third had seen credit scores hit as a result.

    Finance website Credit Karma also estimated Britons had spent £5.79 billion using these schemes — and more than £4 billion had not been paid off.

    Yet the Treasury only announced a consultation on regulation proposals in October — with action now not expected until well into 2022.

    Regulation would force lenders to carry out proper affordability checks and ensure customers struggling to repay loans were treated fairly.

    Borrowers will also have the right to complain to the Financial Ombudsman Service and win compensation.

    Labour MP Stella Creasy says: ‘It doesn’t take a rocket scientist to know people are going to start overspending this Christmas. We’re looking at millions if not billions of pounds of debt.

    ‘The worrying thing is that the majority of consumers don’t know buy-now, pay-later schemes are a form of credit.

    Major brands shouldn’t be engaging with the likes of Klarna until they are properly regulated. Without regulation, I worry we’re about to see a huge wave of vulnerable people in debt.

    Now you can spread cost of £21,500 perfume

    Eau dear: A bottle of Soleil Lalique Crystal Edition perfume costs £21,500

    Eau dear: A bottle of Soleil Lalique Crystal Edition perfume costs £21,500

    It brands itself as the world’s leading luxury department store. So you wouldn’t naturally associate Harrodsusual clientele with a buy now, pay later scheme. But the store this week announced a partnership with Klarna that allows customers to borrow money for purchases interest-free.

    It means shoppers visiting Harrods in Knightsbridge, 西ロンドン, can spread the cost of their expensive goods across three instalments. The service is only available on beauty products, but Klarna says it would be rolled out to other departments.

    Martyn James, of complaints website Resolver, 言う: ‘If there is anything that illustrates the unsuitability of buy now, pay later schemes it’s this partnership. The industry has long told us that it is simply there to help people afford things they otherwise couldn’t afford. But there is absolutely nothing affordable or accessible about Harrods.

    One of its most expensive beauty products on offer this festive season is a 1,500ml bottle of Soleil Lalique Crystal Edition perfume for £21,500. If a customer were to take advantage of Klarna’s ‘Pay in Threeservice it would split the cost of the perfume into payments worth £7,166.66.

    Klarna does set spending limits to customers depending on the size of the purchase and how long they have shopped with them. Alex Unitt, partnerships director at Harrods, 前記: ‘Harrods is known for providing a first-class shopping experience and this latest partnership with Klarna enables us to give our customers maximum flexibility and convenient payment options.

    Selling credit

    Yet Christmas shoppers will struggle to get through their gift lists this month without seeing the name ‘Klarna’.

    Advertising for the buy-now, pay-later scheme is plastered across hundreds of retailers’ ウェブサイト, appearing on the homepages of fashion website Boohoo and sportswear brand JD Sports among others.

    There is even an advert for the credit firm on the Christmas tree at London Paddington station. And Klarna’s latest partnership with Harrods confirms that it is no longer just reserved for students.

    Data from Klarna shows retailers saw a 48 per cent increase in the number of sales made during Black Friday this year.

    Online retailer Boohoo is offering a year’s worth of free next-day deliveries to customers who pay using Klarna.

    同様に, as part of a Black Friday promotion, the food retailer MyProtein offered customers the chance to win their shopping for free if they proved they had paid with Klarna.

    Christmas spenders are also being bombarded with offers from controversial and unregulated 'buy-now, pay-later' firms

    Christmas spenders are also being bombarded with offers from controversial and unregulated ‘buy-now, pay-later’ 企業

    Money Mail understands that the advertising watchdog is looking to investigate whether or not buy-now, pay-later is being responsibly promoted.

    Baroness Ros Altmann, a consumer campaigner, 言う: ‘I am really worried about this tendency to encourage people to buy things that they think they can afford but in the end gets them in more trouble.

    Debt shark alert

    A debt charity is warning of impostors looking to cash in on money misery after ‘misleading and irresponsible’ advice adverts were banned.

    The Advertising Standards Agency found the National Debt Service promotions from Financial Support Systems suggested the firm was affiliated with charity National Debtline.

    The ads suggested the scheme was endorsed by the Government, which it was not.

    Jane Tully, from charity the Money Advice Trust, says there is ‘a serious issue with misleading debt advice ads’.

    Richard Lane, from StepChange, 追加します: ‘This Christmas plenty of incentives are dangled at consumers to encourage them to use buy-now, pay-later.

    ‘Our concern is they may encourage people to borrow who wouldn’t otherwise have done, tempting some to buy more than they can comfortably afford.

    This runs counter to our long-standing belief that credit should be actively chosen by consumers, not treated simply as a by-product of retail sales.

    Gareth Shaw, head of money at consumer group Which?, 言う: ‘There are clear benefits to buy-now, pay-later services.

    They offer ease and convenience for many, providing an important alternative to other, more costly types of credit.

    しかしながら, どれ? research found people often turn to buy-now, pay-later at stressful and challenging times in their life only to be confronted by a barrage of online shopping checkout options, often without any important information about late fees, credit checks and the risks of falling into debt.

    ‘There should be no further delay to plans for regulation.

    Xmas hangover

    Overdraft rates are also now at a record high, according to the Bank of England data.

    It comes after the regulator ordered an overhaul of fees amid fears that vulnerable customers were facing ‘disproportionately high’ 費用.

    The FCA also wanted banks to introduce a simple charge so that borrowers could easily understand what being overdrawn is costing them.

    Under the new rules, banks and building societies scrapped fixed-penalty charges and instead hiked interest rates to as much as 50 パーセント.

    Those going £500 overdrawn today can expect to pay £150.36 more than in 2004 when average interest rates were charged at 14.6 パーセント.

    A Klarna spokesman says: ‘We assess someone’s ability to repay on every purchase, have spending limits and restrict the use of Klarna after missed payments, preventing additional spending.

    ‘We are a licensed bank and already operate to regulated standards. We welcome regulation so high standards are consistently applied across all providers.

    A Boohoo spokesman says it would welcome engagement between retailers, providers, consumer groups and financial regulators about the best way to protect vulnerable customers from getting into debt.

    b.wilkinson@dailymail.co.uk

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