Credit card users face an additional £41m in interest charges for withdrawing cash after a so called simplification of the marketplace by the Department of Trade and Industry according to research by uSwitch.com

The changes, introduced in May 2005, allow credit card providers to display a simple yearly cash withdrawal interest rate, rather than the Annual Percentage Rate (APR) which is the total cost of credit.

This means a card which had an APR of 25.4 per cent in May 2005 and displayed a cash withdrawal per annum rate of 22.95 per cent in March 2007 is more expensive now, even though it appears cheaper. (The rate of 22.95 per cent now equates to an APR of 26.09 per cent). Rather than apply for even more credit people are advised to seek professional help with debt consolidation

The study by uSwitch, estimated the change meant consumers could be paying up to £1.45 bn a year in interest on cash advances alone, compared to £1.12 billion previously, an increase of over £41 million.

Nick White, director of financial services at uSwitch said: “People who use a credit card to withdraw cash may already be struggling under the burden of debt, and are having to resort to this method of borrowing to make ends meet.

“They can ill afford to pay the exorbitant rates of interest that most lenders are now charging them. While we accept that credit card providers have to make money, and that cash withdrawals carry a higher risk of people getting into bad debt, it is indefensible for companies to penalise their most vulnerable customers.”

Jackie Newton, general manager of Chiltern Debt Management, adds: “The reality is that many of the people using this facility are either unaware of the actual costs charged, or are so desperate to access the cash that they don’t care how much it will cost them.”
“Anyone who has a credit card should check the terms and conditions carefully, especially before using them for cash withdrawals which can work out to be very expensive.”