Credit card reality check
FIVE-MINUTE GUIDE TO... THE 51 PER CENT RULE EXPLAINED
JUST because you see a juicy headline rate offered on a credit card or personal loan, it does not mean you will get it.
Even if your application is accepted, you may be shocked to discover you will pay a far higher APR than the advertised rate.
You might also be granted a shorter interest-free introductory period on a card, or given a lower credit limit than advertised. This is perfectly lawful because lenders are only obliged to give their headline APRS to 51 per cent of successful applicants.
David Black, banking expert at DJB Research, said the remaining 49 per cent could face higher interest or a lower introductory rate: “Those who are refused outright are excluded from the equation altogether.”
Failing to get the best rate could cost you hundreds of pounds a year, but the good news is you can improve your chances of ending up in the top tier.
CREDITWORTHY
Halifax currently promotes an interestfree balance transfer credit card for 29 months, but this may be reduced to 16 months for some. “Halifax is one of the most informative about alternatives rates, others are less clear,” Black said. Moneycomms.co.uk personal finance expert Andrew Hagger said Tesco’s 28-month zero per cent balance transfer credit card has an advertised APR on purchases of 19.9 per cent: “That could rise to 26.9 per cent, depending on your credit record, while the introductory period could fall to 16 months, a full year shorter.” Hagger said a watered-down deal can play havoc with your budgeting: “If someone with a £2,000 balance gets their introductory period cut by 12 months, it could cost them almost £400.”
Figures from Experian show that somebody who takes out a personal loan for £10,000 over five years with an advertised headline rate of 5.1 per cent could end up paying 16.7 per cent, pushing up their monthly repayments from £189 to £246.
That extra £57 a month would add up to an extra £3,420 worth of interest over five years.
KEEP IT CLEAN
You can boost your chances of making a successful application in advance, by going online and searching for credit card issuers and price comparison sites with “eligibility checkers”, where you key in personal details and are told which deals you are likely to get before you apply.
Black said: “Look for those that do ‘soft’ credit checks, as these will not leave an imprint on your credit record.”
Experian has a guaranteed rates service covering card providersvirgin Money and Capital One, and personal loans from Admiral Car Finance, Zopa, Lendable and Shawbrook. Managing director Amir Goshtai said the service, available to its users, gives applicants the option to see exactly what they will get in advance.
Totallymoney.com offers pre-approved cards, so you will get the deal providing you pass your lender’s fraud and identity checks.with a little careful planning, you can get round the 51 per cent rule.