Barclaycard will automatically hike interest rates for credit card customers as soon as the Bank of England Base Rate increases, under new plans.
The credit card giant is writing to 10.5 million UK customers to tell them that from February 2016 the standard and cash interest rates they pay on borrowing will follow Base Rate.
This means if Base Rate increases, Barclaycard customers in the red will see their repayments rise as the interest rate on their deal changes to reflect this.
How much will I pay?
Barclaycard has developed an interest calculator to help cardholders get an idea of what a Base Rate change could mean to their monthly minimum payments and interest.
The rates Barclaycard customers pay vary, but the majority are on deals that have an annual rate of 18.9%.
If Base Rate was to rise by 0.25% it would cost you 21p more in interest each month for every £1,000 of your balance on a card with an 18.9% APR.
On the other hand if Base Rate falls by 0.25% you would pay 21p less interest for every £1,000 of the balance on a card with an 18.9% APR.
Will this impact promotional offers?
Those on special promotional rates like 0% purchase or balance transfer deals won’t be impacted by the change until the 0% period comes to an end.
Why is this happening?
A Barclaycard spokesperson said: “The Bank of England Base Rate has a direct impact on our funding costs and as such we need to reflect it in the interest rates we charge on our products.
“Our existing product terms and conditions allow for changes in the base rate to be passed onto customers, but we want to make the link more explicit to ensure that any changes in future are passed on in the most transparent way possible.”
However credit card rates have not closely followed the movements in Base Rate in the past.
According to financial information website Moneyfacts, the average credit card rates have risen from 17.7% in 2009, when the Base Rate fell to a record low of 0.5% , to 21.5% today.
Nonetheless, Barclaycard is unlikely to be the only credit card provider to make this move in the coming months.
When will Base Rate rise?
The Base Rate is reviewed every month by the Bank of England, but it has been at a record low of 0.5% for over six years now.
But with the cost of living falling and inflation in negative territory the prospect of a Base Rate rise is not very likely this year.
In fact the bank’s chief economist Andrew Haldane suggested last week that cutting Base Rate even further was just as plausible as raising it.
Realistically interest rates aren’t likely to rise until late next year and when they do the shift is expected to be small.
Do I have to accept the change?
Barclaycard says it is giving customers at least six weeks’ notice of the change, so that unhappy borrowers can opt out and close their card.
If you still owe money on your card interest will apply at the standard rate and you will need to continue making at least the minimum monthly payments until the balance is cleared.
How to clear your credit card debt
Don’t pay more than you need to on your credit card.
If you have credit card debt that is costing you money you can shift it onto a 0% balance transfer deal.
These can freeze the size of your debt for a period which means all your repayments go towards reducing your debt rather than paying interest.
Some deals charge a fee to move the balances but there are more and more cards that are fee free.
The longest-lasting deal on offer is the Barclaycard 37-Month Platinum Balance Transfer Credit Card which offers over three years interest free on balance transfers for a 2.55% fee. Meanwhile the longest-lasting free deal is available with the AA which offers 22 months 0% on balance transfers.
You can take a look at the best 0% balance transfer credit cards to see a roundup of the best deals or head to our comparison centre to find one that fits your situation.
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