Blog
Margins and risk - the spiralling cost of credit
20th February 2010
There has never been a strong link between the policy rate decisions of the Bank of England and the interest rates charged to customers who take out unsecured loans using their credit cards. But withbase rates at 0.5% and lilkely to remain well below their neutral rate for some time to come, the chasm between this and the average of 18-19 per cent annual rate on unpaid credit card balances has rarely been wider.
The lenders claim that rising debt default levels from borrowers suffering from the recession and rising unemployment has increased the risks of loans and that higher rates are the inevitable result of this.
Consumer watchdogs take a less benign view and argue that the financial companies are exploiting consumers and whacking up their profit margins even during these difficult times.
This BBC news video from Brian Milligan provides food for thought on the credit card issue and makes a good resource to use when teaching monetary policy and personal finance. The BBC Radio 4 Today programme also covered this issue during the week.