Major banks will cut interest rates on credit cards but there's a catch
TORONTO -- When it comes to credit products, credit cards typically charge the highest amount of interest, with rates around 20 per cent. Now, Canada’s six largest banks are reducing interest rates by about half and are allowing deferment of payments for up to six months.
“With the average Canadian carrying tens of thousands of dollars in credit card debt with very high interest rates, it's an essential thing that needs to be taken action on," Luke Sheehan, vice president of marketing at Ratehub.ca, told CTV News Toronto.
Ratehub.ca said the Bank of Montreal, Scotiabank and CIBC have changed their interest rates on their credit cards to 10.99 per cent for customers who apply for financial relief. Meanwhile, RBC and TD have made a 50 per cent interest rate cut on their cards.
Depending on the bank, customers can also apply for minimum payment deferrals for a period of two to six months.
Sheehan says while lowering credit card rates is good for cash strapped consumers, each bank's approach and the criteria to qualify is different. While rates may be reduced to about 11 per cent interest will continue to add up.
“You’re very much getting a reduced rate of interest, but the debt still exists and will need to be paid at the end of it," Sheehan said.
You need to make the first move
Also, consumers who want to take advantage of lower credit card rates and deferred payments need to make the first move.
“You have to reach out to your credit card company yourself,” Credit Canada Debt Solutions spokesperson Adriana Molina told CTV News Toronto. “It's not something that they are just going to be providing to everyone."
Molina said the interest rate relief is a positive step as long as people don't run up more debt. Consumers are advised to be careful of other credit products that charge high interest rates.
“We highly recommend that people stay away from second tier lenders (payday loans). They can do a lot more harm than good especially if your income could be compromised in the coming months,” Molina said.
If you’re concerned about your debt, reach out to your financial institution to see if there is a way to get relief and be patient as it may take several attempts to get the information you're looking for.
Hundreds of thousands of Canadians are expected to take part in the credit card interest rate reduction and payment deferral program.