Emergency use only for high-rate student credit cards

17 August 2007
A report from Moneyfacts.co.uk should serve as warning to students who are tempted to take out credit card specifically designed for students.

Many banks offer credit cards with low credit limits, supposedly preventing students from running up high debts. However, with interest rates as high as 19.9% on some cards, students could be incurring more debt than they realise.

Moneyfacts.co.uk analyst Lisa Taylor says: “While the limits may be small, even a few hundred pounds can prove a struggle to repay with no regular income. And if you find yourself with a balance you cannot repay in full, and can only afford the minimum repayments, this debt could still be with you long after you graduate.”

Interest rates vary, with Lloyds TSB offering a £250 credit limit and a 19.9% interest rate, and HSBC providing a £500 limit with a 15.9% rate.

Ms Taylor adds: “Take the example of a £500 credit card balance with an interest rate of 18.9%; assuming you are only able to afford the minimum repayment of £5.00/2.5%. This original £500 debt would take you 12 years to repay and cost £487.27 in interest, meaning you would repay virtually double what you originally borrowed.”

Students are advised to spend only what they can afford to repay on credit cards and to use interest free overdrafts – offered by almost all banks – as a first resort when at a loose end. Credit cards can be useful, when travelling for example, or in an emergency, but should not be overused.

Find out more about student credit cards and student money