Price comparison website uSwitch has criticised lenders for dropping monthly minimum repayments to as little as two per cent of the balance, arguing that this makes borrowing more expensive in the long-term.
Nick White, head of personal finance at uSwitch, questioned why lenders would be less stringent with repayments at a time when levels of personal debt are rising, with many borrowers struggling to clear their debts.
“By reducing the minimum repayments to a level that makes credit cards seem more affordable and allowing customers to repay smaller amounts each month, borrowers are retaining their debt over a much longer time frame and paying more interest,” he said.
Mr White added: “Our investigation has found that the total interest repayable more than doubles, and the balance will take nearly twice as long to repay, when comparing cards where only a two per cent monthly repayment is required rather than a three per cent minimum payment.”
More than ten lenders have cut minimum repayments from three per cent to two per cent in the past two years, with more than 50 providers now allowing minimum repayments of just two per cent.
uSwitch argues that there is no justification for such a low figure.
However, it is clearly popular with borrowers, with 3.4 million credit card holders choosing to make only minimum repayments each month.
ClearDebt chief executive, David Mond, says: “Paying the minimum on all your cards is often a subconscious admission that you can’t deal with your debt.
“People in this position should look into their debt management options and take advice as to the best route to becoming debt free.”