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Across the UK 1.9 million people plan to roll over outstanding balances onto a new credit card in 2012 because they have a card with a 0% balance transfer period which will come to an end, says Sainsbury’s Finance. A further 867,000 card users benefit from a card with a 0% offer on purchases which will soon expire, and intend to apply for a card with a similar offer.
In Scotland 35% of card applicants, or 214,000 people, will be applying for a new product in order to re-start their free credit compared with 32% for the UK as a whole, 49% for the north-east of England, and 20% for London.
The interest rate on cards which offer interest-free periods typically rises from 0% to 18.2% (from balance transfers) and 18% (purchases) once these expire.
Stuart McKeggie, head of Sainsbury’s Credit Cards, said: “In total 7.9 million people plan to take out a new credit card between October 2011 and September 2012, and 32% of these said it is because of their interest-free periods ending on their existing cards. This is still clearly the main reason for taking out a new card, and for those that want to spread their costs, it can be a sensible planning option.”
Anyone looking for a new card is set to benefit from greater competition in the market with the length of promotional rates on balance transfers and purchases at an all-time high. The average promotional length for 0% balance transfers currently stands at 21 months, and the average length of a 0% purchase card is the highest it’s ever been at 15.4 months.
This week Halifax launched an All In One Credit Card, offering a market- leading 0% for up to 15 months on both balance transfers and purchases. The card has the typical balance transfer fee of 3% and a “go-to” rate of 17.9%.
Kevin Mountford, head of banking at Moneysupermarket.com, warned: “This card is risk-based so if you have a less than good credit profile you are unlikely to get this specific deal.”
But while 76% of Scots claim to have a good to excellent knowledge of credit ratings, only 57% realised that a mark was left on their credit file with each credit application, according to new research by Nationwide.
The building society says: “People are more aware that they need to shop around to get the best deal, but for credit products shopping around could leave customers in a worse position than when they started.”
It found 47% of people in Scotland would make three or more applications for a credit card or personal loan, thinking they could select the best deal once accepted, but adds: “Only 40% of people realised that by making multiple applications their credit score would be affected and they would be less likely to be accepted.”
Nationwide allows customers to make soft quotes, where they can find out the rate they are likely to be offered based on their circumstances, without affecting their credit record.
Graham Pilkington, Nationwide’s director of banking, said: “By offering soft quotes Nationwide is allowing customers to protect their credit file before the full application.”
Meanwhile the success of high-charging payday loan companies has prompted credit union Scotwest to create a product to promote responsible lending. Its “Revolvaloan” enables members to establish a pre-agreed personal borrowing limit up to £2500 and access funds whenever required.
Rod Ashley, chief executive of Scotwest, said: “This product works similarly to a credit card, but without the high interest rates commonly associated with this type of lending.
“One month a member might need £200 to get a new washing machine. They then start paying off that loan and then later they need a further £500 loan to get repairs to their car. Using Revolvaloan, they can request funds and have them within 24 hours, if they have a current account with us.”
But 24 hours is too slow, according to the new breed of instant loan providers who boast they can deliver cash to your account in 15 minutes in “lunchtime loans”.
According to one high-profile player, “hundreds of thousands of professionals are turning to Wonga.com during their lunch hour as a means of sorting out urgent cash flow needs or bagging time-sensitive bargains”.
An even bigger rival Ferratum says: “People like the flexibility of a microloan. Consumers are turning away from taking out a long-term loan with a traditional lender.”
And the cost? That £200 for a washing-machine, borrowed in a hurry at lunchtime and repayable within 47 days, will cost you another £100 in interest – not 16.1% as at Scotwest, but 50% in real terms and a representative annual rate of 4214%.
Mr Ashley says: “We are keen to help our members to borrow responsibly and so far we’ve had a terrific response.”