Consumers 'turning to expensive credit cards'

12 March 2010 15:57:35

Hugely expensive credit card deals are being snapped up.

Credit card interest rates have been rising in recent months, despite the Bank of England base rate being at a historic low of 0.5% since March 2009. At the same time, lenders have become increasingly reluctant to offer deals to borrowers who they believe are likely to miss repayments. However, one provider has revealed a huge level of interest in one of its most expensive deals.

Desperate to borrow

Provident Financial has confirmed that it is currently receiving approximately 2,700 applications per day for its Vanquis credit card, which is designed for borrowers who have poor credit histories or have been turned away by high-street banks. The sub-prime card carries an average rate of 39.9%, but the company confirmed that this can increase to as much as 59.9% for some consumers.

According to Provident, a large proportion of the interest is coming from middle-class families who are increasingly relying on credit in the current economic climate. The provider already has about 426,000 customers, but it has also been forced to reject applications from an additional 830,000 people.

Downward spiral

The findings are even more worrying when placed against the backdrop of the latest Bank of England figures, which indicate that Britons owed a combined £61.5bn to credit card companies in January 2010, representing a 15% rise from 12 months earlier. There are now major concerns that some families will become so desperate that they will turn to doorstep lenders and payday loans companies, some of which charge interest rates of up to 3,000%.

"These people are not being served by the high-street banks and it just goes to show the appetite that there still is out there for credit," said Chris Tapp, director of debt charity Credit Action.

"The rates on these cards are very high if you cannot manage your debts. The fear is that while some of these people will hopefully have been put off, many will have to turn to companies which can charge exceptionally high amounts."

Protective measures

The clear message from Provident's revelations is that an increasing number of Britons are dependent on credit to fund their everyday expenses. However, anyone who is considering applying for a deal similar to the Vanquis offering must be fully aware of the nature of their commitment. A spokesman for the Consumer Credit Counselling Service highlighted the importance of reading all the terms and conditions before signing up and budgeting to pay back balances in full each month.

"Unfortunately, it is likely that people signing up for these cards may well already be in financial difficulty, and [they] should seek free and impartial advice," the spokesman concluded.

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