HBOS cuts minimum repayments by 50%

Amidst the current financial uncertainty, it seems the HBOS group is offering a lifeline to struggling credit card customers.

Starting this week, all of their 4 million credit card customers will be allowed to make a minimum repayment of just 1% of their balance each month - half the previous amount (2%).

This is part of a slightly complex minimum repayment restructure which HBOS claims is designed to help consumers on higher interest rates to reduce their balance more effectively. These higher interest rates are incurred by making cash withdrawals, online gambling, credit card cheques etc. With 3.4 million (11%) credit card holders already opting to make the minimum repayment each month, in theory this could help many of their customers.

Summary of changes:

The minimum repayment has now been cut from 2% to 1%.

Credit card customers will have to pay 1% of the balance each month
or, if the following is greater:
monthly interest charges + insurance premiums + any late payment charges + £5.

HBOS customers with a 0% new purchase or balance transfer credit card will only have to pay 1% of their credit card balance each month for the duration of the offer as they will not incur interest charges.

This change will not apply to student credit cards.

Simeon Linstead comments: “Whilst we fully support any initiative to help consumers reduce their debt and pay less interest, complex changes to terms and conditions can cause unnecessary confusion. On closer inspection, it doesn’t seem that all customers will benefit from this change and some people would be better off under the 2% minimum repayment ruling. These latest changes from HBOS are really designed to help people carrying out transactions which carry higher interest rates. Unfortunately, due to the complexity of the changes being made, it is very difficult for consumers to understand if they will benefit or not.

“In the current climate we strongly advise people to carefully read all correspondence from their credit card provider as it seems a new glut of ‘tweaks’ to terms and conditions are currently being implemented by providers. Generally speaking, making the minimum repayment may seem like a good idea at the time but it will barely touch the balance and could lead to a very long debt sentence.”