Concerns over increased defaults on credit cards have pushed the average interest rate up to a thirteen year high according to figures released this month. The average credit card rate is now 18.9 per cent; the highest level since 1998.
Fears over job losses mean providers have hiked rates
The rate increases have happened because more and more banks are concerned that borrowers will default on their credit card payments. That is the view of financial data analysts Moneyfacts who have been monitoring rates for many years.
Credit card rates have been increasing gradually since 2008 when the average rate was 16.8 per cent. Rates have not been as high as they are now since February 1998 when the average was 21.1 per cent. Lenders have factored in the prospect of increased unemployment and that increasing numbers of borrowers will default on their payments.
Michelle Slade, a spokesperson for Moneyfacts.co.uk, said: “This increased risk continues to be passed on to both new and existing credit card customers through higher interest rates.”
Increased credit card repayments
Higher interest rates mean that borrowers making the minimum repayment each month on a debt of £5,000 will pay a total of £11,372 overall. This is compared to just £9,012 in February 2006 when rates were at their lowest level.
Ms Slade added: “During the financial crisis many card companies reassessed their existing customer base and many customers have seen large increases in the rates they are charged.
“Customers who would previously have switched to another provider are now finding it’s not so easy to do so.”
To avoid increased charges, consumers are being encouraged to look for a better deal on their credit card and The Herald Scotland identifies several balance transfer deals worth consideration. The newspaper reports that: “next to Barclaycard’s 0 per cent balance transfer deal which lasts for 17 months, and includes a £20 discount off the balance transfer fee if a balance of £3,000 or more is transferred before January 31, MBNA, NatWest and Virgin credit cards are all offering 0 per cent transfer deals for 16 months.”