Is it wise to take out a new credit card while there is so much uncertainty surrounding the UK’s exit from the EU? Looking at the data, it seems that Brexit may have spooked many consumers.
The Bank of England’s most recent Credit Conditions Survey showed that lenders expect to see a significant decrease in demand for credit card lending in the first quarter of 2019. If you’re in the market looking for a credit card, should you follow the crowd and hold off? Here we look at the pros and cons of taking out a new credit card before the 29th March 2019 deadline.
Reasons to wait to take out a card until after Brexit Let’s start with the “pro” argument for sitting on your hands and not taking out a card until after the Brexit deadline has passed.
Uncertain economic conditions – The UK as a whole is in limbo. Since there is no definitive plan for Brexit as yet, the country is facing an unknown economic future. With a no-deal Brexit looking like a potential outcome, the impact on the UK economy could be significant.
Even if a deal is agreed, there is likely to be a period of adjustment when the country breaks away from the EU. Taking on unsecured debt in an uncertain economic climate could be a risk. With that in mind, it largely depends on what you plan to use your card for and how confident you are of your own personal circumstances. The risk is that you take on a new card and are unable to make the minimum monthly payments, leading to penalty fees and high interest charges on the unpaid debt.
Less enticing deals – There was a significant decrease in the length of interest-free periods available for balance transfers and new purchases at the end of 2018. This followed the trend of recent years, with lenders gradually reducing their interest-free offers. This trend is likely the result of many factors, but Brexit on the horizon could be part of it.
Either way, there are fewer competitive deals available than there were six months ago. It’s hard to tell if lenders will offer longer terms once we pass the deadline of 29th March 2019, but if Britain can find itself on a more secure economic footing, credit card offers could potentially become more tempting again.
Reasons to take a card out before Brexit Now let’s look at the flip side and run through the arguments in favor of snapping up a card prior to 29th March.
Interest rates could rise – We have seen the Bank of England base rate slowly creep up over the past year, and with the impact of Brexit interest rates could potentially rise further (although the Bank did vote to keep interest rates at 0.75% in February 2019). While the base rate doesn’t directly impact credit card borrowers, it does increase the cost of borrowing for banks and building societies, which they could pass on to consumers in the form of higher APRs.
However, providers are unable to change your terms if you’ve had a card for under 12 months and they will have to notify you of any changes to your APR so that you could close your account and pay off your balance at the original rate. Basically, the newer the card, the less likely you are to be impacted by an increase in credit card interest rates.
You could also look at securing yourself an interest-free offer on either balance transfers or new purchases in order to protect yourself from rate rises in the near future.
There’s no harm in grabbing a deal – If you have seen a great cashback offer or rewards credit card then there is no real reason to wait until after 29th March to grab it. Brexit definitely has the country spooked and sometimes it feels that the safest thing to do is nothing at all. But that may not be the case and there is no reason to miss out on a great offer just because you are waiting to see how Brexit play out.
What should I do? As with anything, you would need to make a decision based on your own personal circumstances. The reality is that the UK is facing a very uncertain economic future, with several predictions of a potential recession in 2019.
If you are confident that you can conduct sensible borrowing practices and pay off your balance in full each month, then there shouldn’t be a large negative impact in taking out a card before the Brexit deadline. However, no matter what happens on 29th March, it remains that wise borrowing behaviour pays off over the long term. And if you stay close to that, then it may not matter what Brexit throws at you…at least when it comes to your credit card situation.
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