Credit crunch cash

Find out why vulnerable people are being forced deeper into debt

More than a million people have used cash withdrawn on credit cards to pay their mortgage, loans and household bills, according to new research.

Price comparison website uSwitch claims a further 700,000 are withdrawing cash from one credit card to pay off another.

And with major credit card providers charging 7.3m credit card customers cash withdrawal rates of up to 32% APR, it seems they are cashing in on these vulnerable consumers who are desperate to get their hands on cash - whatever the price.

Almost one in three people (69%) who make cash withdrawals do not know how much it costs and 12% believe it's no different to a debit card withdrawal.

In 2005, the average APR for cash withdrawals was 21.22% APR, today this has increased by 41% (8.75% APR) to 29.97%[3] - this is almost double the average purchase APR of 17.2%.

Christmas on credit
 
In the coming months, a further 1.7m people are planning to fund the first credit crunch Christmas with this "credit card cash" and, going forward, it seems the problem will only get worse as almost four million consumers plan to use this facility if their financial situation declines.

uSwitch.com's Louise Bond said: "People who use a credit card to withdraw cash may already be struggling under the burden of debt and are forced to resort to this method of borrowing to make ends meet.

"They can ill afford to pay the exorbitant rates of interest that most lenders are now charging them. While we accept that credit card providers have to make money, and that cash withdrawals carry a higher risk of people getting into bad debt, it is indefensible for companies to penalise their most vulnerable customers.

"With some providers now charging up to the APR equivalent of almost 32% on cash withdrawals, equivalent to some sub-prime credit card rates, cash rates have become sub-prime rates masquerading as mainstream lending."