Most credit card owners have no idea what interest rate they pay — with more than a third estimating the interest level at between 18% and 24%.
That’s according to a national survey carried out by the Irish League of Credit Unions (ILCU) which found that two-thirds of people have little or no understanding how credit card interest rates work.
The survey found that more than half the population has a credit card and over 70% admit they rely too much on their credit cards for making purchases.
Almost 60% of credit card users said they were not aware of the interest rate they pay on their purchases.
Of those who said they did know the interest rate they are paying, just 31% estimated that they pay between 18% and 24% interest. One quarter said they pay between 11% and 17%.
A significant 20% said they only pay between 6% and 10%, when in reality, credit card interest rates typically range from 13% to 23%.
When asked to estimate how much interest they pay if they clear their minimum monthly payment due, 40% of those who didn’t know what interest rate they pay incorrectly said they didn’t pay any interest.
One in 10 said they had no idea how much interest they would pay after clearing the minimum due.
Well over half of those surveyed said they will use their card for monthly ad hoc purchases this year.
A total of 12% said they will use it to fund a planned holiday, while 11% said they had made a new year’s resolution to throw the card away.
Based on their previous credit card habits, 67% said they would clear their balance in full every month. Just 18% said they would clear the minimum payment due.
Despite the general lack of awareness around interest, the survey found 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, while 13% said their credit history had suffered during the downturn when they were unable to make loan repayments but had since improved.
One in 10 people said they had never had a loan or a credit card so did not have a credit history built up. Just 5% said they were not aware that taking out a loan or using a credit card contributes to credit history.
ILCU head of communications Paul Bailey said the lack of awareness around credit card interest is concerning, particularly given their popularity.
“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,” he said.
“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.”