Higher Interest Rates for Credit Card Users Expected

Many people in the United Kingdom rely on credit cards to finance their lifestyles, their businesses, and sometimes their housing. With increasing pressure on people to make their credit card payments, recent news of interest rate hikes is likely to be discouraging to most. Many of those who borrow may find that they are going to be charged more than the rate which was advertised at the time of signing. There are new rules that allow some of the major financial institutions to increase interest rates without much notice.

At present, there are around ⅔ of people who apply for loans and credit cards in the UK that get the exact advertised rate. However, with new rules coming from the Continent, the number will fall drastically to 51%. Starting in February 2011, the new rules from Europe will allow only slightly more than half to receive the exact interest rate for their credit card and personal loan applications. For the benefit of consumers, however, there will be more information given out about the changes and how they affect each individual client. The change came from the European Consumer Credit Directive which shall be incorporated as UK law in February. The new rules will show that the interest rate will be clearly stated at the time of application for a credit card or small loan.

For consumers, the annual percentage rate or APR as it is commonly known will be shown at the time of application. For credit card companies, this amount will be required to equate to at least 51% of the business generated from the particular advertisement. There are several websites dedicated to this subject, and many of them have reported that upwards of 3,000,000 people will likely apply for a credit card or personal loan in 2011. Thus, it is extremely important to understand that the interest rate must be presented at the time of the application.

If consumers do not see adequate explanation of the interest rate at the time of application, they may be able to take legal action against the company which violated these new rules. If consumers are not aware of what is allowable under the new European law, they may be rejected for that particular offer. Worse yet, the consumer who does not know about certain aspects of the law may be forced to accept a higher interest rate, often without his or her own knowledge.

The current laws for the country show that for every 100 people who will apply for a credit card or small loan in the UK, less than half are accepted. Around ⅔ of these are given the rate which is advertised. This number will fall in February, so consumers should be aware of the new rules.

The Bank of England has stated that loans and overdrafts have been declining since the previous year, with many consumers remaining cautious about shaky economic times for 2011. In addition, those with credit cards have a bit more room to play with. Those who issue credit cards are now forced to provide at least 60 days of notice to its clients in the event of an increase in the interest rate. If the consumer is not happy with this, he or she must be allowed to pay off the debt at the older rate if he or she wants to. Thus, there are more options for those with credit card debts as opposed to small loans.