By Alison Bell
Credit card users are paying more for low rate, balance transfer cards after lenders hiked "hidden" interest rates to 19.18 per cent and cut honeymoon periods.
They are now paying an extra 0.42 of a percentage point on the average hidden interest rate after the honeymoon period, financial comparison website RateCity said after reviewing its database of providers.
Lenders use lower interest rates to hook new borrowers to transfer their other card debt.
These balance transfer rates apply for a honeymoon period, before reverting to higher, permanent interest rates.
Honeymoon periods have been shortened sharply over the past five months, with the average period now at 4.6 months instead of 11.5 months in December, the research shows.
And there are 32 fewer balance transfer cards on offer since December, with just 21 offering a balance transfer interest rate of less than two per cent, seven fewer than six months ago.
But across the board, card providers have improved their offers to lure borrowers, lowering the average balance transfer rate by 25 basis points in the past five months to 3.77 per cent.
Exceptions include the balance transfer rate for Virgin Money’s No Annual Fee card, which jumped a whopping four per cent, and ANZ Banking Group’s (ANZ) low rate Mastercard, which increased 2.9 per cent.
Sixty-four per cent of Australian adults had at least one credit card by March.
Of those, 61 per cent intend to reduce the debt within six months, Veda Advantage’s most recent debt study shows.
That task has become more difficult because interest rates on standard credit cards have also jumped, with most lenders passing on the Reserve Bank’s 25 basis point hike last November, financial comparison website InfoChoice data showed.
Eleven lenders made over-sized interest rate rises of up to 175 basis points, and only two cut interest rates, but only on specific products.
The average interest rate on standard cards now sits at 17.73 per cent, up from 17.37 per cent in November.
GE Money’s GO MasterCard is the most expensive, slugging borrowers an interest rate of 21.74 per cent, while Citibank charges 20.99 per cent on three products and Macquarie Bank charges 20.95 per cent on two.
Lenders enjoy very healthy margins on credit cards and may be looking to recoup that as delinquencies rise, typically three years after a financial crisis, said TS Lim, a banking analyst with Southern Cross Equities.
"After a crisis, interest rates go down to very low levels. Some people use their credit cards even more," he said.
"Three years after a crisis interest rates start to go up again and you can see a lot of pressure in that segment."
Recent reports from three major banks show card delinquencies are climbing.
National Australia Bank (NAB) last week reported a seven basis point rise in 90-day delinquencies on both cards and personal loans to 1.16 per cent of its loan book for the six months to March 31.
ANZ’s 90-day delinquencies on credit cards are at a similar level after rising 10 basis points during the same period, and Westpac’s rose two basis points to 1.14 per cent.
CBA in February said 30-day delinquencies on credit cards had levelled off by December.