In all the debate about home loan interest rate cuts, the question of credit card rates often gets overlooked. Crunching the numbers reveals that rates on plastic have barely budged over the years and are now out of step with the Reserve Bank cash rate.
Credit card rates rarely make the headlines; a look at the figures shows just how little they’ve changed.
Latest research from RateCity shows that while the Reserve Bank has slashed the cash rate by 2 percentage points since November 2011, the average purchase rate on credit cards has fallen just 0.12 percentage points, down to 17.16 percent, in the same period.
RateCity estimates that consumers have been slugged $842 million in extra interest because credit card providers did not pass on Reserve Bank-led cuts in that period.
Credit cards used to be termed “plastic fantastic”, but do consumers understand the true potential cost of having a credit card?
Alex Parsons, chief executive of RateCity, said if you have a credit card debt of $5000 at 17 percent, and pay the minimum of 2 percent you’d end up paying $10,680 interest and take around 30 years to clear the debt.
“I think there is some lazy money out there where consumers don’t spend the time or effort to really understand their own variables and really understand what the best deal is for them,” he said.
Consumer group Choice’s Matt Levey says to shop around.
“These are complex products, they are often poorly understood and for those reasons consumers tend to pay far more than they need to for credit cards,” he told SBS World News. “We see that in record bank profits, we see that in the huge amount of outstanding balance that Australians have on their credit cards.”
Reserve Bank data shows Australians owe $50 billion on their credit cards, or around $3282 per card.
Some credit card debts, though, are frighteningly high, says Gerard Brody of the Consumer Action Law Centre.
“It’s not uncommon to have someone with $10,000, $20,000 or even more than that in credit card debts,” he told SBS.
Representing the banks, the Australian Bankers’ Association, says credit card interest rates are higher than mortgage rates because the lending in unsecured, default is higher and the rate of debt recovery is lower.
Consumers are urged to educate themselves about credit card costs, because the right information could save you plenty. At RateCity credit card rates are available from 12.49 percent, and personal loan rates are available from 9.09 percent (at the time of writing), so do your homework, compare and you could save.