Customers lose out to payment order
Major UK credit card providers offering 0% on balance transfers cost their customers more money by splitting repayments unevenly, Moneysupermarket has revealed.
The price comparison website found RBS, Barclaycard, MBNA, HBOS, HSBC, Lloyds TSB, Capital One and Egg use their customers’ monthly repayments to clear the cheapest debts first, racking up more interest for the consumer.
According to Moneysupermarket, if a customer of one of the providers mentioned above transfers a balance of £2,000 balance transfer at 0% and then spends another £1,000 on their new card, a repayment of £2,500, would mean the remaining £500 balance would still accrue interest at the typical APR – usually around 15.9% – rather than continuing at the 0% rate.
Steve Willey, head of credit cards at Moneysupermarket, said: “Credit card providers are quick off the mark to attract customers with 0% deals but they are much slower when it comes to educating people on what that 0% actually means.
“Balances are being split without consumers realising. Many cardholders paying the minimum balance each month are being stung because their money is only paying off the cheapest debt. This is why a 0% balance transfer card isn’t a good thing to spend on.”
Nationwide, however, goes against the grain by using customers’ repayments to clear the most expensive debt first. Jeremy Wood, director for credit cards and banking at Nationwide, said: “I am pleased Moneysupermarket has recognised the importance and impact of the order of payments credit card providers use. An adverse allocation of payments costs consumers £500 million in unnecessary interest charges each year – charges that customers can ill afford to pay. It’s essential consumers understand the differences between the credit cards available when it comes to making a decision about which card to choose.”