Record High Interest Rates on Credit Cards Hit Borrowers

The cost of borrowing money on a credit card has reached a record high, with interest rates on purchases hitting an average of 35.3% in June this year, according to new figures from Moneyfacts. This is the highest APR since electronic records began in June 2006.

The APR, or annual percentage rate, indicates the cost of borrowing over a year, including interest and fees. For example, borrowing £1,000 at the average rate of 35.3% would cost you £1,173.49 in total.

A combination of card withdrawals and interest rate rises have contributed to this increase, according to Moneyfacts’ latest unsecured lending trends treasury report. The average rate at the same time last year was 31.2% and 26.7% in 2022.

The Bank of England has kept interest rates unchanged at a 16-year high of 5.25% since August last year. While the base rate has remained the same, it is significantly higher than the historic low of 0.1% in December 2021, leading to increased borrowing costs.

Despite the high average rates, it’s important to note that the exact rate you get on a credit card depends on your individual circumstances. Shopping around can still help you find a better deal than the average rates.

According to Moneyfacts, The Co-operative Bank’s 3-year fixed rate Visa card currently offers the lowest purchase APR and purchase PA at 8.9%. On the other end of the scale, American Express’ Platinum credit card has an APR of 704.6% and PA of 31%.

The number of interest-free purchase offers has stalled at 58 in the three months to June, down from 67 offers a year ago. The length of zero-interest periods has increased slightly to 264 days.

In addition to credit card costs, the cost of personal loans has also risen significantly this year. Borrowers looking to borrow £3,000 over three years face an average rate of 17.2%, compared to 16.4% last year. The average rate on a £7,500 loan tier now stands at 8.6%, compared to 5.2% in June 2022.

Rachel Springall, at Moneyfacts, advises borrowers to carefully plan their repayments and consider switching to interest-free offers to manage their debts effectively. Seeking advice from debt charities or existing lenders can also help borrowers better manage their repayments and avoid high-interest charges.

Overall, it’s important for borrowers to carefully consider their borrowing options and avoid falling into debt over high-interest costs. Seeking help from debt advice services and carefully comparing offers before committing to new credit cards or loans can help borrowers manage their finances effectively.