Are these finance companies ripping us off?
With the interest rates at a new low (uk) and vat being lowered are finance companies obliged by law to lower payments from customers.
I have been told unofficially that they do not have to legally lower payments but,I thought that the vat rate was set by the government and was in fact the most anyone can charge customers.
Can you please help with this as it needs clarifying.
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June 4th, 2010 at 4:50 am
VAT is a set rate and as you said is set by government. Interest rates are set by finance companies. If the Bank of England lower or increase the base lending rate the majority of High Street lenders normally follow the lead. however they are not legally obliged to. If you have a poor credit record or you shop on store cards the interest rates on these tends to be higher and there is less chance of the interest rate being reduced.
June 4th, 2010 at 4:53 am
They do because they know the government will always bail them out and have no real power to be able to regulate them properly even if they would want to, which they don’t as they are not bothered about poorer people being ripped off.
June 4th, 2010 at 5:08 am
If you have a locked in interest rate, then no. You have a set interest rate. Just be VAT is lowered for interbank lending, doesn’t mean that the financial companies are going to rewrite every loan. If they do that when rates go down then they should be able to do it when the rates go up also.
June 4th, 2010 at 5:44 am
Not being in the banking sector, but I would have presumed interest rates on loans, credit cards, mortgages were all set dependent on risk. The higher the risk, the higher the interest rate financial institutions generally charge. Any money made on interest then covers any potential loses made through writing off of non-recoverable debts. Therefore, because the risk of defaults in this current climate (with all the redundancies being made) you are not seeing the interest rate reductions being passed on.
VAT has nothing to do with the interest rates, but is a levy on services provided to the consumer by most (not all) businesses. Whether the rate reduction is passed on or not is down to each individual retailer, but they must state that they are charging 15% VAT in their accounts, and not 17.5%.