Finance expert’s Credit Assistant reveals the borrowing blind spots that are costing consumers hundreds
By TotallyMoneySep 23rd 2020
Finance experts TotallyMoney have warned that consumers could be unwittingly losing hundreds of pounds by using certain financial products against their advantage. Research reveals:
- The majority (53%) have an outstanding debt on a credit card but no 0% promotional offer, meaning they could be paying an average interest rate of 20.77%*
- Consumers can save a substantial £445 of interest by transferring the average credit card balance to a 0% balance transfer card of 23 months†
- Consumers could pay £5.23 in withdrawal fees and interest on an average £82 credit card cash withdrawal, with a shocking 44% unaware that doing so will be classified as cash advance transaction‡
- Thousands could soon be paying interest as high as 40% on their overdraft, as the £500 interest-free overdraft offered to 27 million at the beginning of the coronavirus pandemic comes to an end§
A massive 20% drop in income and 10 million people on the furlough scheme during coronavirus has seen many turn to credit to get by.│
However, TotallyMoney has warned that with interest-free overdrafts and payment holidays coming to an end, recovering from the financial effects of coronavirus may be costlier than many realise.
True cost of borrowing exposed
The finance experts have said that increased awareness of more expensive types of borrowing could allow customers to find cheaper alternatives, which can help prevent them from spending more than they need to.
For example, some of the 27 million people offered an interest-free overdraft when the coronavirus pandemic started could soon face higher interest rates than before it began, with many reaching highs of 40%.
Furthermore, despite credit cards often being a cheaper alternative, many don’t realise the majority will accrue an average of £445 in interest due to not having a interest-free promotional offer.
Credit card fees further soar when a card is used for a cash advance transaction, which not only incurs a withdrawal fee, but also starts accumulating interest the moment the transaction is complete.
Shining a light on borrowing blind spots
TotallyMoney has launched a free and exclusive app-first feature to give customers an overview of how they use credit, including flagging types of borrowing that could be expensive, such as frequently using an overdraft, using a credit card for cash advance transactions, and carrying a balance on a card with no promotional rate.
Credit Assistant summarises why these could be expensive ways to borrow, so consumers can better understand how to use their credit and get more money in their pocket.
Alastair Douglas, CEO of TotallyMoney, comments:
“For millions of people in the UK right now, finance is a real struggle. The uncertainty of coronavirus is still present and many people may have taken out extra credit products, or taken payment holidays, to help manage spending.
“However, credit can be confusing, and it’s not surprising that consumers don’t know what classifies as a cash transaction, what their interest rate is, or even how often they use their overdraft. With greater transparency about these types of borrowing, consumers can avoid unnecessarily paying out extra.
“Looking at debt and borrowing habits can be daunting, though. With Credit Assistant, we’ve enabled customers to see their credit and how they’ve used it over time in a clear and meaningful way.
“At TotallyMoney, we’re on a mission to improve the UK’s credit score. Credit Assistant can help people look at all their borrowing behaviour, understand how they can make better decisions, and move on up to a better financial future.”
*Based on a sample of 193k TotallyMoney customers from September 2019. Average interest rate as of February 2020 from https://themoneycharity.org.uk/money-statistics/
†Average credit card balance of £2,595 and interest rate of 20.77% APR based on research by https://themoneycharity.org.uk/money-statistics/. Average balance transfer length and fee from Defaqto July 2020
‡Average cash advance fee and APR taken from Defaqto, 6th August 2020. Average amount withdrawn from https://www.link.co.uk/about/news/coronavirus-cash-usage-data/. Data on consumer awareness from TotallyMoney's Financial Awareness Survey 2020, a nationally representative survey of 2,000 UK adults, commissioned by TotallyMoney and carried out by OnePoll, survey date 20/01/2020-22/01/2020.
Based on interest-free overdrafts offered by UK Finance members https://www.ukfinance.org.uk/press/press-releases/uk-finance-responds-fca-announcement-further-support-consumer-credit-customers. Interest rates from https://www.thisismoney.co.uk/money/saving/article-8189253/New-overdraft-rates-40-meant-come-force-today.html
For more information, please contact the press team
TotallyMoney believes people’s financial data should work for them, and not against them and with more than four million customers, they provide the UK’s only free, live credit score and report.
Its service helps customers understand their financial position and provides personalised recommendations so they can start creating financial momentum. TotallyMoney also works closely with leading lenders, to ensure eligible customers are matched with the right products, underpinned by its robust data, product and tech capabilities.
TotallyMoney is regulated by the Financial Conduct Authority (FCA).