On 25th June moneyextra.com published an article by Emma Lunn under the name “The 59.9% APR Credit Cards?” Emma says that recently she got an offer of credit card from Vanquis. They were offering a huge APR of 39.9%, or 59.9% on the “classic” option. If you wanted to withdraw cash on the card the interest rate would be 46.19%. Interest would be charged from the date of the transaction, although you could qualify for the standard 56 days interest-free after you had paid off two or more consecutive statement balances in full and on time.
Minimum repayments were 3% of the balance or £10 (whichever is greater) on the “gold” option, or 5% of the balance or £5 on the “classic” option. It was further explained that on an interest rate of 39.9% for a purchase of £250 on the card, paying just the minimum each month you would pay £78 interest in the first year, £60 in the second year and take a total of six years and two months to clear the balance.
No sane person would go for such an unattractive deal. But there is a purpose to this card, it is meant for those who have a bad credit rating or no credit rating at all. When someone applies for a credit card, the interest rate they are offered is determined by a scoring system which takes into account the applicant’s credit history coupled with the other information such as their income and employment status. Somebody who has a history of being late paying bills might not qualify for best buy deals but will still be able to get a decent rate. However, people who have regularly defaulted on payments or have a county court judgment against their name will find it difficult to get credit.
This is where Vanquis take advantage it targets people with a poor credit rating – the so-called sub-prime market – saying taking out their card will help them prove they can manage money and improve their credit record. If one manages to not pay any interest for six or 12 months, it’s an opportunity to get back into mainstream credit cards again as it proves you can be trusted with a credit card. And if a customer manages to pay their bill on time and ideally pay off the balance in full each month after a year or so they will have built up a good enough credit history to qualify for larger and lower-rated cards, loans or mortgages, assuming they are meeting their other credit commitments elsewhere