Credit cards are getting more expensive these days as a study on a wide spectrum of plastic money by the Consumer Council revealed that interest rates are on the rise despite a low interest rate environment.
Of the 21 credit cards surveyed, half of which (11 / 52.4%) are charging an annualized interest (APR) equal or exceeding 30% for consumers who carry a card debt - a whopping increase compared to the Council's 2006 findings when only 3 (13.6%) out of 22 providers were charging a rate of that level.
Financial institutions are digging deep into the pocket of credit card holders as consumers are charged an APR of 8.41% to 36.07% for retail purchases and are expected to pay a rate between 20.62% and 37.49% for cash advances.
And for consumers who fail to pay the minimum payment on time, the financial charges will be augmented further. The default charges for retail purchases can be as high as 47.09% while cash advance charge will range from 20.62% to 47.09%. Consumers can consider to apply for personal loan or cash in from his credit card if in need of cash turnover.
The hefty borrowing costs experienced by a credit card holder is in stark contrast to the low interest rates prevailing in the market where the current mortgage lending rate hovers at around 2% and the deposit rate at below 1%.
Card issuers are exempted from compliance with the Money Lenders' Ordinance. They are free to set rates subject to rules under the Code of Banking Practice. Plastic money users are thus advised to watch out for fees and charges that add onerous costs to the bill.
Annual fees are ranged from HK$125 to HK$6,000 though the fees are usually exempted for new cardholders. Since most card issuers would auto-renew the card, consumers are advised to take note of the exemption period when applying for a new card. According to Code of Banking Practice, card issuers should not automatically renew a card without giving the cardholders at least 30 days' notice commencing from the date of renewal. Cardholders can cancel the card without having to pay the renewal fee.
In the study, credit cards usually provide an interest-free repayment period of 46 to 90 days, interest rates, however, may also be applied on new transactions when the account carried an unpaid balance from the previous month. Only two credit card issuers surveyed provide interest-free repayment period for new spending.
For consumers who always pay the balance in full, the benefits and perks they earned while spending may be deemed more significant.
All credit cards in the survey are attached to rewards programme with a redemption period lasting in general from 1 to 5 years, and most offer a cash rebate, at rates between 0.357% to 1%. Consumers are advised to pay special attention to the calculation of rewards as redemption criteria vary that makes comparison difficult. In the study, two issuers provide no cash rebate for single transaction below HK$200.
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