Credit Cards Buck Trend In Consumer Lending

The economic downturn of the last 3 years has brought with it a series of job cuts

across every industry, high inflation and severely stretched budgets.

This has also managed to scare lenders to the point where borrowing has become a rare and altogether more impressive feat to pull off as they fear defaults and write-offs would eventually consume their profits.

Recent numbers released by Mintel show that, between 2007 and 2010, consumer credit lending fell by around 13%, loans and overdrafts being the worst hit by reductions. However, despite this cross-market drop in lending there was one area of consumer credit that actually saw an increase in lending throughout the economic crisis, and this was credit cards.

Over the last three years, gross credit card lending actually saw a slight increase, with estimates suggesting that credit card providers increased their market share of consumer credit lending by 12 per cent.

There are many, quite obvious reasons why credit cards would be preferred to taking out loans during times of financial difficulty.

Credit cards allow the holder access to flexible borrowing with fewer restrictions than a fixed term loan and more back-up if a financial emergency were to occur. This sense of freedom, coupled with the flexibility that credit cards allow, makes for a very appealing offer to those struggling to pay for things.

This in-turn only goes to boost credit card lending further when consumer confidence makes a steady return, as the structured loan alternatives will feel somewhat less attractive than the credit cards that individuals have become accustomed to.

This is then coupled with a more relaxed approach to lending and repayment than a standard loan agreement; credit cards also have a proverbial ace up their sleeve in the form of the Consumer Credit Act section 75.

This act means that purchases 100 and 30,000 made on a credit card are given protection from any manufacturers faults that may occur with the product. And although this is not a main reason why an individual may choose a credit card as apposed to its competitors, but does give an incentive to choose plastic over a loan or overdraft.

One credit card of real interest in the aftermath of the global economic downturn is the Virgin Money credit card which was released recently (September 28th).

This new card offers customers the opportunity to benefit from zero percent commission on balance transfers for 16 months after signing up as well as six months zero per cent charges issued on purchases made on a 15.8 per cent annual percentage card.

On top of this, holders will gain access to discount offers on products such as Virgin holidays, train tickets and gym memberships in the same way a Rewards Credit Card would work.

Grant Bather, spokesman at Virgin Money, observed this deal gives individuals both "freedom" and "all round good value", as well as flexibility on the use of plastic.

by: Sam Gooch

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