18 February 2010
11:4840970I'm confused (no surprise to some of you) about UK interest rates and maybe someone out there can explain please.
As I undertand it the Bank of England base rate is currently something like 0.5%?
Some credit card companies have just put up their rates and one of my card rates is now 26.70%; is that APR? How are they being allowed to get away with such high rates if the base rate is so low? What is their justification? I've heard they are blaming defaulters but, if that is the case, surely raising interest rates will only make more folks default?
Last night on tv there was an advert for short term cash loans that "attracted" an APR of 2346%!!!!!!!!!!!!!!!!!!!!
What is going on here?
Guest 686- Registered: 5 May 2009
- Posts: 556
18 February 2010
15:3340986If your credit card is charging 26.7% then look elsewhere! If you pay off the balance each month then it won't cost you a thing of course but if you retain a balance from month to month then expect to pay for it.
I can't say I've ever heard of a credit card company putting down their rates - they only go in one direction usually.
Phil West
If at first you don't succeed, use a BIGGER hammer!!
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
18 February 2010
16:5241010Sid - the base rate is only one factor that goes into the setting of interest rates on borrowing. Rises and falls are not necessarily in-line with those movements. At higher base rates there is more room for the rates to reflect better the base rate movements.
There is the risk premium for fraud and defaults (there is always higher risk during a recession). The admin costs and provider margins also need to be maintained and tend increase relative to a lower interest rate as many of these costs are fixed. Also the bank base rate does not always reflect the underlying rate being paid by the business. Take LIBOR - the interbank lending rate, that was 0.61% in December with the base rate 0.5%, for instance.