Home Business News Credit card providers slow cuts to interest-free terms

Credit card providers slow cuts to interest-free terms

by LLB Reporter
17th Jun 19 12:06 pm

The latest quarterly Moneyfacts UK Credit Card Trends Treasury Report, which studies the UK personal finance market (Unsecured Personal Loans, Credit Cards and Overdrafts) and is due to be published later this week, reveals that providers have continued to cut the length of interest-free purchase and balance transfer terms on credit cards, albeit at a slower pace over the past quarter.

Indeed, the average interest-free term on purchases has fallen to 331 days, a drop of just four days over the past three months, in comparison to the fall of 14 days recorded in the previous quarter (December – March 2019). The drop in interest-free balance transfer terms has also fallen at a slower pace, a drop of just seven days over Q2 2019, in comparison to the fall of 30 days in Q1 2019.

Credit card market analysis

Credit card deals Jun 2017 Jun 2018 Mar 2019 Jun 2019
Longest introductory 0% purchase credit card Sainsbury’s Bank – 0% for 31 months MBNA – 0% for 30 months Virgin Money – 0% for 28 months Barclaycard – 0% for 28 months
Average interest-free purchase term (days) 380 360 335 331
Number of introductory interest-free purchase deals 102 88 75 77
Longest introductory 0% balance transfer credit card MBNA – 0% for 43 months, 3.29% fee MBNA – 0% for 36 months, 1.99% fee Sainsbury’s Bank – 0% for 30 months, 3% fee MBNA – 0% for 29 months, 2.75% fee
Average interest-free balance transfer term (days) 660 595 539 532
Number of introductory interest-free balance transfer deals 126 101 80 86

Source: Moneyfacts Treasury Report

Rachel Springall, Finance Expert at Moneyfacts said, “While the pace of cuts to 0% credit card deals has slowed over the past quarter, there is still a noticeable difference with the generosity of lengthy interest-free terms compared to previous years. As it stands, the average interest-free purchase term stands at 331 days compared to 360 days in June 2018, whereas the average interest-free balance transfer term has fallen to 532 days, down from 595 days in June 2018.

“On balance transfer cards, it appears to be that the top deals have little to define them, with the top 0% deals offering a term of 29 months, the majority of which charge a 3% fee (expect for the market-leader MBNA which charges 2.75%). Traditionally, there would be much more competition with pricing balance transfer fees when the longest 0% deals sat alongside one another, but today this doesn’t seem the case. A year ago the longest deals were offering a 0% interest-free term for 36 months and the fees varied, with the lowest set at 1.99% and the highest at 2.80% over this term.

“As it stands, borrowers not only have a shorter time to repay their debts before interest applies compared to a year ago, but they may also pay a higher upfront fee when choosing the longest 0% balance transfer cards on the market. Still, it is important that consumers consider these offers instead of incurring consecutive interest charges. If someone made a purchase of £3,000 on a typical credit card and made just £100 in repayments per month, the debt would linger for over three years and cost them £970 in interest.

“Consumers either looking to move their debts or make a purchase still have many options to choose from, but they would be wise to scrutinise any upfront costs first. As with any debt, customers must ensure they set up a fixed repayment plan to clear their debt before any 0% offer ends.

*Credit card repayment based on £3,000 purchase, based on an interest rate of 18.9% APR, minimum fixed repayment of £100 (thereafter a minimum of 1% plus monthly interest or £5, whichever is higher) and would take three years and four months to pay back, costing £970 in interest over this term.

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