TotallyMoney has warned that consumers could be unwittingly losing hundreds of pounds by using certain financial products against their advantage.
The company’s research has revealed that the majority of consumers (53%) have an outstanding debt on a credit card but no 0% promotional offer, meaning they could be paying an average interest rate of 20.77% These Consumers can save a substantial £445 of interest by transferring the average credit card balance to a 0% balance transfer card of 23 months.
In addition, consumers could pay £5.23 in withdrawal fees and interest on an average £82 credit card cash withdrawal, with a shocking 44% unaware that doing so will be classified as cash advance transaction Thousands could soon be paying interest as high as 40% on their overdraft, as the £500 interest-free overdraft offered to 27 million at the beginning of the coronavirus pandemic comes to an end§
A massive 20% drop in income and 10 million people on the furlough scheme during coronavirus has seen many turn to credit to get by. However, TotallyMoney has warned that with interest-free overdrafts and payment holidays coming to an end, recovering from the financial effects of coronavirus may be costlier than many realise.
TotallyMoney has said that increased awareness of more expensive types of borrowing could allow customers to find cheaper alternatives, which can help prevent them from spending more than they need to.
For example, some of the 27 million people offered an interest-free overdraft when the coronavirus pandemic started could soon face higher interest rates than before it began, with many reaching highs of 40%.
Furthermore, despite credit cards often being a cheaper alternative, many don’t realise the majority will accrue an average of £445 in interest due to not having a interest-free promotional offer.
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.
Alastair Douglas, CEO of TotallyMoney said “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.”
“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.”
“Looking at debt and borrowing habits can be daunting, though. With Credit Assistant, we’ve enabled customers to see their credit and how they’ve used it over time in a clear and meaningful way.”