Customers fume as credit card provider raises interest rates from 9.9% to 26.6%

Zopa Bank, a digital challenger bank with over half a million customers, is increasing its interest rates. The bank launched its credit card in 2020, initially attracting applicants with advertised interest rates as low as 9.9% annual percentage rate (APR).

The APR represents the yearly cost of borrowing on a credit card, including fees and interest. Despite advertising a representative APR of 34.9% (a rate Zopa Bank was legally required to offer to at least 51% of applicants), many customers with good credit scores benefited from the lower initial APR rate of 9.9%.

However, The Sun has confirmed that Zopa Bank has raised its lowest available APR for new customers to 26.6%, up from the initial 9.9% value. The digital bank is set to increase interest rates for some of its existing customers, particularly those who were previously enjoying rates lower than the new 26.6% threshold.

The changes have sparked frustration among customers, many of whom have voiced their dissatisfaction online. On a digital finance forum, one customer complained: “Just a heads up if you have a Zopa CC, Zopa have hiked my interest rate up 10 points today 12% to 22% – completely out of the blue.

“I only use it for big purchases and rarely ever go over 25% of its limit – usually always paid off within 3 months. I can’t understand why they are doing this, it’s puzzling (other than greed). I’ll just pay off what I owe before the new rate kicks in and ditch it.”

Another discontented patron reported: “Mine up from 17% to 26.7% – closed as I didn’t really need it although it was my lowest APR card, it no longer is. Not that I carry a balance – except a 0% balance transfer.”

Credit card firms routinely review and revise their interest rates due to several factors, such as shifts in the economic landscape or a reevaluation of a customer’s creditworthiness. These adjustments can be targeted at specific customers or implemented broadly.

Should your credit card’s APR climb from 9.9% to 26.6%, you’d find yourself paying an extra £167 in interest for every £1,000 borrowed over the course of a year. At a 9.9% rate, the annual interest would be £99, but at 26.6% , that figure goes up to £266.

However, there is a silver lining for those who manage to settle their statement balance in full each month. The alterations to the interest rates will have no impact, as they won’t incur any interest charges.

A spokesperson for Zopa, as reported by The Sun, said: “We regularly review our credit card interest rates to ensure they provide fair value to our customers. As part of this process, customers’ rates may increase or decrease, as is the case now. When a customer’s rate changes, we provide at least 60 days’ notice.”

They further explained: “Customers have the choice to opt out from this. If they do, their interest rate will stay the same and their credit card account will be closed once the balance is fully repaid. We don’t impose a strict repayment deadline, allowing customers to pay off their balance at a reasonable pace with no impact on their credit file or any other Zopa Bank products.”

For those who can only afford to pay the minimum balance but wish to avoid accruing interest, transferring your debt to a balance transfer credit card could be a viable solution.

Balance transfer credit cards are a beneficial tool for individuals aiming to pay off existing debt, as they usually offer an interest-free period on transferred balances, enabling more of your payments to go towards reducing the debt itself.