Credit card customers feel effects of interest rate rises

The series of interest rate rises in the UK over the past year has hit many consumers hard. Homeowners on variable rate mortgages have seen their repayments rocket over the past year, with many being pushed to the financial brink as a result of the five interest rate rises, each for 0.25%. The base rate now stands at 5.75%, up by 1.75% from August last year. Many analysts are predicting that there will be a further interest rate rise of 0.25% or more in August or September.

However, it seems as though it is not just mortgage repayments that consumers are struggling with as a result of interest rate rises. Recent reports indicate that over £50 million has been paid out in penalty fees to credit card companies in the past six months by consumers that have fallen behind on repayments, and this is despite the fact that penalty fees from credit card companies have been capped at a maximum of £12 since last year as a result of reviews by financial regulators in the UK.

The data suggests that credit card customers are struggling with repayments more than ever as a result of interest rate rises. Not only have the rises affected the interest that they have to pay on their credit card balance, but those with mortgages have had to deal with rising mortgage repayments leaving them with mess income to deal with other debts such as credit cards.

One official stated: "This is the latest evidence of how many people are struggling to cope as interest rates start to rise. The effect of missing one credit card payment can last as long as three years. That is how long the mistake will stay on your credit file and it will be used by firms to decide whether they're going to lend you cash and what they're going to charge."

Tom Smith
31st July 2007