We believe that it’s important that how credit card pricing works is understood. Credit cards are different from other credit products, for example loans and mortgages, because they are ‘open ended’. This means that there's no end point and customers can borrow and repay as it suits them, enjoying the benefits and flexibility over many years.
The following information seeks to answer several questions, including how interest rates are set when an account is first opened, why it's necessary to have different rates for different ways in which customers use their accounts and why interest rates may need to change over time.
What is an interest rate?
This is the actual rate at which interest is charged, expressed as a percentage of the amount borrowed.
What is an Annual Percentage Rate (APR)?
This is an expression of the total charge for credit, taking into account the interest rate and some other fees. Legislation determines how the APR is calculated. It does not include avoidable charges, such as late payment fees. We are required to state the APR in advertisements, allowing borrowers to compare rates.
How is the interest rate set when a credit card account is first opened?
In Northern Bank all successful applicants are given the same starting rate. Rates vary between card types but all credit card account holders enjoy the same rate for any particular card as published in our rates literature.
Where can you look to find out your interest rate?
A good way of checking out information about interest rates and other charges is to look at the Summary Box for your card type. We produce a Summary Box for each of our cards in order to make the credit process as transparent as possible for you. The APR in each Summary Box is based on a sum of £1200 borrowed over 12 months.
Will the interest rate on your card account vary depending on how you use it?
Some card providers charge different rates for a standard purchase, taking out a cash advance, balances transferred from other cards and promotional offers. In Northern Bank we simply charge a single, flat rate irrespective of whether it is a purchase or cash withdrawal.
Why do interest rates change over time?
Interest rates can go up or down. A credit card is an unsecured and open-ended borrowing tool, so it carries more risk than with other lending products. The card rate reflects changes in the cost of providing credit, economic conditions and the risk that some customers may not be able to repay.
Does a change in an interest rate just apply to any new spending?
No, changes will apply to the whole of any outstanding balance, because the risk that a customer might not be able to repay applies equally to the existing balance on a card, as much as it does to any new spending.
Is all re-pricing done in the same way and for the same reason?
In Northern Bank any price change will apply to all customers holding the same credit card.
Are there any rules around re-pricing activity?
Yes, a set of principles has been agreed by the credit card industry following discussions with Government. These principles ensure that:
- You will be given at least 30 days notice of an increase in your rate.
- You will have the option to close the account and repay the remaining balance at the existing rate of interest, within a reasonable period. You will have 60 days to exercise this choice and you will be reminded at least twice that you have this right.
- Where Northern Bank has an alternative lending product, we may also provide the option to transfer the balance to this at the existing (or lower) interest rate.
- We will not increase an interest rate more often than every six months.
- When we tell you about an interest rate increase, we will explain in clear language how it is changing, what it will cost and the options available to you.
Are there any other reasons why interest rates may change?
You will see a change in your interest rate where you have been benefiting from a promotional interest rate which has come to an end.