Six in ten credit card users don’t know what interest rate they pay
Posted on: 06 Mar 2019
A new, national survey has found that more than half of the population own a credit card (57%). However, almost six in ten (59%) credit card users said they were not aware of the interest rate they pay on their balance. 68% of women asked did not know what interest rate they paid, compared with 51% of men.
The national study was commissioned by the Irish League of Credit Unions (ILCU), and carried out by independent research company, i-Reach Insights, in December 2018. 1,000 adults responded to the online survey.
Knowledge of Interest Rates
Of those who said they did know the interest rate they are paying, just over three in ten (31%) estimated they paid between 18% and 24% interest. One quarter said they paid between 11% and 17%. A significant 20% said they only paid between 6% and 10%, when in reality, credit card interest typically ranges from between 13% to 23% in the Irish market.
Among the same group – those saying they knew what interest rate they paid - there also appeared to be a lack of real knowledge of how interest was applied. For example, when they were asked to estimate how much interest they paid if they cleared their minimum monthly payment due, four in ten incorrectly said they didn’t pay any interest.
Over a quarter (29%) correctly said they paid interest on the full balance from date of transaction to date of payment, as well as interest on the outstanding balance.
12% said they had no idea how much interest they would pay after clearing the minimum due.
Almost three quarters (72%) of all respondents said they did not believe credit card companies in Ireland did enough to explain the interest rates. 68% agreed that the general public lack an understanding of how the interest works.
Commenting on the findings, ILCU Head of Communications, Paul Bailey said: “We are concerned about the lack of awareness around credit card interest, especially given the popularity of credit cards with adults in this country and the tendency to use them on a monthly basis. We would strongly urge consumers to, at the very least, really inform themselves about the rates of interest they are paying, and importantly, when they will incur interest fees. The Competition and Consumer Protection Commission website is just one of the resources available that consumers should become familiar with, as it provides simple explanations about complex financial products.”
“Part of the core ethos of credit unions is financial education and empowerment, and people will find that credit union staff are always more than happy to provide explanations on financial terms and offer guidance on managing and clearing debt. Of course, ideally, we would advise consumers to clear their balance in full, ditch the cards for good and make 2019 the year they free themselves from unnecessary debt.”
Credit Card Habits
The vast majority of credit card owners (55%) said they will use their card for monthly ad hoc purchases in 2019. 12% said they will use it to fund a planned holiday, while just 11% said they had made a New Year resolution to throw the card away.
Based on their previous credit card habits, over two thirds (67%) said they would clear their balance in full every month. Almost two in ten (18%) said they would clear the minimum payment due.
Personal Credit History
It appears that the majority of the population believe they have a very healthy credit rating. Two thirds said they had a perfect credit history as they had never missed a credit card or loan repayment. 13% said their credit history had suffered during the downturn when they were unable to make loan repayments, but had since improved. 10% said they had never had a loan or a credit card so did not have a credit history built up. While, worryingly, 5% said they were not aware that taking out a loan or using a credit card contributed to a credit history.
Awareness of Central Credit Register
More than half said that they had never heard of the Central Credit Register** (51%). When the CCR was explained to them, the majority said the knowledge would not change their attitude towards money management. Just over two in ten said they would ensure they were more diligent with loan repayments. Four in ten said they always made loan repayments on time so no change was necessary. A further 10% said they were not worried about the impact missing repayments would have on their credit history.