Consumers Thrown into Hit-or-Miss Credit Card Lottery

1 Aug, 2019

01 Aug 2019

Recent figures from a survey by Moneycomms show that consumers are often being tripped up at the final hurdle of their credit card application.

Customers could end up with a 0% balance transfer or purchase offer reduced by up to a year, or get an APR (annual percentage rate) nearly 10% higher than advertised.

Used properly, credit cards can help consumers get on top of their finances — transfer a balance, get access to cash, or cut the cost of a big or unexpected purchase. But all this uncertainty, on top of the risk of not even being accepted in the first place, makes it a monetary minefield.

Risk-based pricing, a method used to assess the risk of lending to certain individuals, is common practice by most lenders. However, it’s not common knowledge and can lead to poorly managed consumer expectation.

Alastair Douglas, CEO of credit experts TotallyMoney, comments on the latest research from Moneycomms, revealing the difference between advertised credit card deals and what the customer sometimes gets.

Douglas warned: “Lenders are not always clear enough when advertising rates. Only 59% of cards let consumers know that risk-based pricing will be used to make the lender’s decision — and even when they do, it’s not all too clear.

“Some customers will be offered a very different product. A 29-month 0% balance transfer deal could be slashed to just 16 months, and the 27.4% APR advertised balance transfer rate could be hiked to 59.9% APR.

“One way to ensure you get the advertised offer or rate is to apply for a card you’re pre-approved for — which you can check with TotallyMoney. Pre-approved means you’ll get the deal, providing you pass the lender’s fraud and identity checks, and that the information that you provide is correct.

“Otherwise, it’s hit and miss for card applicants, and it doesn’t help customers who are choosing the length of 0% deals for a specific purpose to suit their budget.”

Andrew Hagger personal finance expert from Moneycomms, who carried out the research, said: “It’s frustrating for customers to get a watered-down deal and the financial consequences only makes matters worse.

“If a borrower gets their 0% duration cut by the average 7 months, on a £2,000 balance, the shorter interest-free intro offer could cost them up to £256 in that time.

“From a customer perspective, it’s a bit of a lottery and being short-changed on a 0% balance transfer or purchase deal can play havoc with their financial budgeting.”

Table 1. Well-known high street lenders can cut their 0% offers by 12 months. Seemingly top offers can be cut down to sub-prime levels, and the market-leading length you apply for could become very mid-tier.

Provider 0% product type Advertised term months Could be down sold to (months) Difference
MBNA Balance Transfer 29 16 -13 months
Tesco Bank Balance Transfer 28 16 -12 months
Halifax Balance Transfer 29 18 -11 months
Post Office Money Balance Transfer 25 18 -7 months
TSB Balance Transfer 28 22 -6 months
Tesco Bank Purchases 26 14 -12 months
Halifax Purchases 20 9 -11 months
TSB Purchases 20 10 -10 months
Sainsbury’s Bank Purchases 28 22 -6 months

Table 2. When applying for an advertised low-rate card, you could end up with something nothing of the sort.

Provider Advertised Purchase APR Potential Purchase rate (APR) based on risk Potential increase in Purchase APR
NatWest 18.9% 27.9% +9.0%
RBS 18.9% 27.9% +9.0%
Bank of Scotland 6.45% 14.95% +8.50%
Asda Money 19.9% 27.9% +8.00%
TSB 19.95% 26.95% +7.00%
Creation Cards 18.90% 24.90% +6.00%
New Day – Aqua 27.4% 59.9% +32.50%
Vanquis 39.9% 69.9% +30.00%
Aquis 29.8% 59.9% +30.10%
Chrome 29.5% 59.9% +30.40%
Natwest Credit Card 9.90% 18.90% +9.00%
Halifax 19.95% 27.95% +8.00%
Tesco 19.9% 26.9% +7.00%
Tandem 18.90% 24.90% +6.00%

Research – 26.04.2019

Survey research – TotallyMoney annual Financial Awareness Survey 2019 of 2,000 UK adults, carried out by OnePoll and commissioned by TotallyMoney