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Flexi-rate credit card rewards faster repayment with lower interest rate Barclaycard is testing a new credit card with a flexible interest rate, Repayment Rewards, designed specifically to encourage customers to repay their debts faster. It does so by lowering the interest rate the more of the debt you repay each month. The interest rate charged reduces the greater the proportion you pay off, meaning those who are constructively making efforts to get debt free can do so even faster. In the current trial, those customers repaying at least 10% of their balance are charged a 9.9% interest rate, but paying just the minimum 2.5% payment will mean you receive a 16.9% interest rate. Those paying between 5% and 10% of the balance incur a 12.9% rate. The key premise to the card is that both borrower and lender are responsible for ensuring that the debt is managed responsibly. "Credit – used sensibly – can help us manage our finances and live the way we want to", said Keith Coulter, Managing Director UK Consumer Cards and Loans. "Repayment Rewards is about finding new ways to help customers while encouraging a responsible approach to their borrowing. "   Repayment Rewards is the second card this year from Barclaycard designed with encouraging more sensible borrowing behaviour from consumers. Barclaycard Combinations, launched earlier this year, combines a credit card with a loan facility.   Nice Idea, Shame about the Rate Reaction to the new concept has been mixed. Some, like Nick White of uSwitch.com, see it as a constructive way to incentivise people to repay more of their debt each month. "Over the past few years we have seen credit card minimum payment requirements get smaller and smaller, and paying off just the minimum amount means that it can take consumers years and years to clear their card debts. Others see the card as complicated and gimmicky, pointing out there are plenty of credit cards out their offering limited-life 0% rates on balance transfers and purchases and special low-for-life deals on balance transfers. A valid point in theory, but it misses the fact that not everyone qualifies for every deal. Not everyone has a stunning credit history, all sparkly and clean. Not everyone has a large and impressive credit score. And not everybody manages their finances the way they should or even has the motivation to extricate themselves form debt as quickly as possibly. If they did the nation’s debt would not now total more than £1.1 trillion. Different cards do different things for different people. And for people, circumstances change, needs change and, often as not, credit worthiness changes. Sure there are better deals. In deed, Barclaycard’s own Barclaycard Simplicity offers a flat rate of 6.9 per cent on all purchases and balance transfers. At the other end of the scale, the Barclaycard Initial card is for those who need to build up their credit history. But a better deal is only a better deal when you can actually get it. Since most of the really stellar credit card deals are only available to those with high credit scores and a pristine credit history, it will be seen as something of a positive that Barclaycard Repayment Rewards will be "aimed at a wider target audience".   Time will Tell Whatever the opinion on the interest rates, Barclaycard should be given props for even trialing such a card. After years of credit card companies cutting back the required monthly minimum repayment, Barclaycard have done a 180 on this approach and come up with something that they hope will get those with rolling balances repaying those balances faster. If the history of financial products is anything to go by, it just needs a small take up and other lenders will be offering similar deals. After all, Barclaycard Combinations, the credit card and loan facility combo, is already being emulated. More players will mean more competition and better rates. Should that happen, rates could drop by 4 or 5 percentage points, leaving those paying at least 10% off their balances each month perhaps facing an interest rate of just 4.9% on balances and new purchases. Which would appealing to an awful lot of borrowers. Credit card companies are looking at ways to tackle the "Rate Tarts". To address the costs of astute customers who flit from deal to deal, staying only long enough to reap the rewards. Transaction fees for balance transfers to 0% deals are one way card issuers have addressed this. Low lifetime rates, typically 4.9% or 5.9% APR, are another solution to the constant migration. Could the concept behind Barclaycard’s Repayment Rewards card be another? Time will tell.   Published Friday September 30th 2005

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