Keeping a cheque on your finances
Credit card cheques are a costly way to borrow money, but with more than 18 million cardholders receiving them each year, they are often used as a quick-fix in an emergency. Pauline McCallion reports
The credit card industry is reportedly making £443m a year on credit card cheques. This is because when borrowing from the same account, but using a credit card cheque rather than the card, consumers can end up paying an additional £179m a year in interest charges. Further to this, 98% of the 18m credit card cheque books sent out by providers are actually unsolicited, according to research from uSwitch.com.
The financial comparison website also found that one in three people who use this type of cheque are unaware of the charges imposed. This can include a 2% handling or transaction fee or £17 on every £850 borrowed. In addition, 64% of those surveyed didn’t know the rate of interest charged on any amount borrowed.
Of those people that have been utilising this source of credit, only 30% did so in an emergency. The cheques were used by 22% to pay money into their current account and, worryingly, 3% used them to pay their mortgage. This could result in additional costs of £45 per cheque, uSwitch.com claims.
The Department of Trade and Industry is set to publish its findings on the current regulation of credit card cheques after concerns were raised by a Treasury Select Committee in December 2003. However, uSwitch.com has called for the Government to go further than self-regulation and place a ban on unsolicited cheque books being sent out by providers. It has also proposed the use of tobacco-style health warnings on those that are sent out.
Nick White, head of personal finance at uSwitch.com, says: “Self-regulation clearly isn’t working when it comes to protecting consumers from the additional charges they can incur unwittingly by using a credit card cheque.”
He continues: “You have to ask whether there is a case for the existence of credit card cheques in the first place.
“The fact that one in five people who have used a credit card cheque did so to pay money into their bank account hints at a much bigger problem. This is when consumers find themselves juggling their debts and masking the fact that they are in financial difficulty.”
Credit card cheques may seem like an easy solution for some consumers short of cash, however with the fees imposed – not to mention the high interest rates charged – using credit card cheques could actually be making a bad situation worse for some borrowers.