A massive 20% drop in income and 10 million people on the furlough scheme during the COVID-19 pandemic has seen many Brits turn to credit to get by.
However, with interest-free overdrafts and payment holidays soon coming to an end, recovering from the financial effects of the coronavirus crisis “may be costlier than many realise,” a financial expert has warned.
Research by TotallyMoney found Brits could be unwittingly losing hundreds of pounds by “using certain financial products against their advantage.”
Over half (53%) of Brits have an outstanding debt on a credit card but no 0% promotional offer — meaning they could be paying interest of 20.77%, a survey of 193,000 TotallyMoney customers found.
Based on this 20.77% rate and the average credit card balance of £2,595, Brits could save about £445 of interest by transferring the credit card balance to a 0% balance transfer card of 23 months, the study found.
What’s more, consumers could pay £5.23 in withdrawal fees and interest on an average £82 credit card cash withdrawal, with 44% respondents in the survey unaware doing so will be classified as a “cash advance transaction.”
Credit card fees further “soar” when a card is used for a cash advance transaction, which not only incurs a withdrawal fee, but also starts accumulating interest “the moment the transaction is complete,” TotallyMoney said.
On top of this, thousands of people across the UK could soon be paying interest of up to 40% on their overdraft, as the £500 interest-free overdrafts offered to 27 million at the beginning of the COVID-19 pandemic come to an end, the experts warned.
“For millions of people in the UK right now, finance is a real struggle. The uncertainty of coronavirus is still present and many people may have taken out extra credit products, or taken payment holidays, to help manage spending,” said Alastair Douglas, CEO of TotallyMoney.
“However, credit can be confusing, and it’s not surprising that consumers don’t know what classifies as a cash transaction, what their interest rate is, or even how often they use their overdraft.
“With greater transparency about these types of borrowing, consumers can avoid unnecessarily paying out extra.”