Britons hit by a credit card crunch: Borrowers face higher costs as new figures show interest rates have hit a 13-year high
- In September this year the average credit card APR rose to 24.7%
- This is an all-time high since Moneyfacts started collecting data in June 2006
- APRs have risen 1.8% since September 2017
- Those worried about being hit with bigger credit card bills could shuffle their debt over to a 0% balance transfer card, but make sure you pay it off
Big spenders who regularly use credit cards face higher costs as new figures show the average UK credit card interest rate is now at its highest since at least 2006.
A credit card crunch has seen costs steadily creep up, while balance transfer deal periods have also been squeezed and new data from Moneyfacts shows that in September the average credit card purchase APR rose to 24.7 per cent.
That rate is an all-time high since its records began in June 2006, while the average APR is 0.6 per cent higher than in June this year and has risen 1.8 per cent since September 2017.
An expensive habit: The average credit card APRs are at a 13-year high of 24.7%
Moneyfacts’ Rachel Springall said the cost of borrowing is rising as the best low rate purchase cards have disappeared.
‘Over the past quarter, we said goodbye to the lowest rate purchase credit card on the market and have seen rates increase on these lucrative offers.
‘During the third quarter of 2019 Tesco Bank pulled its Clubcard Credit Card with Low APR Mastercard charging 5.9 per cent, which was the lowest rate card on the market’, she said.
‘Over the same quarter, Bank of Scotland, Halifax and Lloyds Bank increased the purchase rate on their credit cards, rising from 6.4 per cent to 9.9 per cent APR.’
Among cards with no introductory bonus rate on purchases, the lowest APR available is now 9.9 per cent, from American Express and Bank of Scotland. Of course, it is worth noting these are representative APRs, which means as little as 51 per cent of applicants may get that rate.
Amex also recently wrote to customers to tell them that from October it will be partially linking the interest rates on its credit cards to the Bank of England base rate.
According to the latest figures from UK Finance, in June this year £66.5billion in balances remained outstanding on UK credit cards. £15.6billion was spent on credit cards in June in 271million transactions.
However, Springall noted that while these changes were a blow for spenders, there is a suggestion UK consumers are taking action to protect themselves from rising fees.
‘The latest data from UK Finance shows a decline in the proportion of credit card balances that bear interest, now 53.4 per cent in June 2019 down from 54.6 per cent in the same month last year.’
What’s more, the annual rate by which outstanding balances are increasing fell to 3.6 per cent in June, down from 8.3 per cent at the start of 2018.
It suggests that while 0 per cent balance transfer deals are getting shorter, more consumers are taking advantage of them.
Balance transfer cards allow you to shuffle debt onto one card, in exchange for a fee.
The credit card debt will then accumulate zero interest for a defined period, but make sure you pay it off during that time or else you will once again be charged interest.
According to This is Money’s guide to the best balance transfer deals, the longest deal currently available is offered by Virgin Money, which charges a 3 per cent fee and has a 0 per cent interest term of 29 months.
Transfers must be made within the first 60 days or a 5 per cent fee also applies.
Meanwhile, if you are confident you can pay off your debt in a shorter time frame, some cards offer no transfer fees. Sainsbury’s Bank’s No Balance Transfer Fee Credit Card lasts for 20 months while Santander’s Everyday Credit Card lasts for 18.
THE SMALL PRINT: READ THIS BEFORE YOU APPLY
Being approved for a balance transfer card is by no means guaranteed.
In theory, those with the best credit ratings are the most likely to be approved for a card as they will have a history of paying off debt on time and have a stable income.
It is more probable that those with poor credit ratings will be rejected.
Those who are refused should bear in mind that applying for a number of other balance transfer cards in a short space of time will worsen their credit rating.
Many card providers will not allow you to transfer balances from another of its own products, so you should identify the best deal for you outside of your existing providers before making an application.
Some providers meanwhile may only accept your application if you already hold a current account with them.
There are other restrictions you will also have to satisfy, such as having a minimum level of income (generally £10,000-£20,000).
And to take advantage of introductory 0 per cent offers, you may have to transfer your balance within a specified time-frame. Most credit card providers increase handling fees after the first 60 or 90 days.
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS