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Tuesday, January 20, 2009

Hunting down the illusive low rate credit card

By John Braveman

2008 turned out to be the year when the financial chickens came home to roost, and its looking increasingly like 2009 will be a continuation of an economic freeze. Financial institutions are nervous, and even the lowest base rate of interest in the Bank of Englands 315-year history has done little to calm a jittery financial market. The common consensus is that the heady days of easy credit are over. However, consumers are still hungry for good credit card deals and have become accustomed to 0% offers and low APR on credit cards. Credit card companies are worried about exposing themselves to bad debt, so are there still low rate cards available to the clever consumer?

The number of advertisements promoting 0% offers has dropped sharply this year. In comparison to 2008, when the present economic crisis was still an unseen storm on the horizon, there has been very little in the way of New Year, new card promotions, even from the larger providers. This absence of new deals has been noticed not just by the public but by financial watchers as well. The financial organisation Credit Action agree with the evidence and say that credit in general and low rate credit cards in particular are in short supply. They also found that where credit was available it was often more expensive than before. The pundits all agree " the banks are tightening their belts and their credit criteria.

However, the popularity of credit cards continues unabashed and consumers are still on the lookout for a bargain. Chris Tapp, director of Credit Action says that credit cards are an integral part of the way people manage and borrow money and are a very normalised part of everyday life. This means that its going to be very difficult to persuade people to give up their plastic, even in the face of a recession. Added to this is the continuing march of the dominance of Internet sales over high street sales. Online purchasing is on the increase with Ebay and other online auction sites busier than ever as customers hunt for bargains. All of these transactions are done on credit and debit cards (unless you have a PayPal account), so the prospect of the British public turning their backs on credit cards in the near future is remote.

There are still bargains to be had, despite all the gloom and doom. 0% balance transfer cards are still relatively plentiful and special offers on purchases are quite common as well. The 0% grace periods on purchases tend to be much shorter than those for balance transfers and once these special offers end the APR can climb rapidly. This can prompt an unseemly scramble as customers desert their cards in search of a 0% balance transfer to save money. However, frequent card-jumping can quickly damage your credit rating and reduce the chances of further credit. This year, cards are looking for customer loyalty and are changing their tact accordingly. In the coming months we may start to see a groundshift in policy amongst card providers, where cards incur interest charges earlier, but those charges are kept lower to keep customers from seeking solace in a quick-fix 0% temptation.

Rather than chasing illusive 0% deals, 2009 credit card customers would be better placed to accept that, along with death and taxes, credit card interest payments are inevitable and look for the best deals they can find. This includes not only the APR of the card, but any additional fees that a customer may incur such as insurance, handling fees, late payment charges and other hidden extras. The consumer has to realize that the days of free and easy lending are over and has to adjust their expectations accordingly. After all; if businesses have to bend to the financial wind, so do consumers.

The Internet has been of huge benefit to consumers in the brave new credit card world and online comparison sites have given the customer a control over the market that they never had before. They offer the smart consumer the chance to make an informed decision before choosing to apply for certain credit cards that may offer an enticing introductory package but have a nasty sting in the tail once the grace period is over. Credit card companies realise that the consumer is far more powerful than before as knowledge is power and the Internet provides that knowledge to a much more clued-in customer. There are still some excellent, low rate credit card deals to be had, but the market is now a much more symbiotic merging of credit lenders and customers.

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