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Credit Cards & Loans

Cost of credit card borrowing reaches fresh high

Paloma Kubiak
Written By:
Paloma Kubiak

The cost of borrowing money on a credit card has reached a fresh high, overtaking the December record, as more households are set to struggle financially in 2023.

The average purchase APR, including card fees, has risen to an all-time high of 30.4% APR, according to Moneyfacts which has collated the data since June 2006.

This has climbed from the previous record high of 30.3% in December 2022, up from 29.8% in November. Back in December 2020, the rate stood at an average 25.1%.

Meanwhile, the average purchase rate per annum has also reached another high of 24.7%, surpassing December’s figure of 24.6%. This is up from 23.9% in September 2022, and 22.6% in December two years ago.

Moneyfacts put the increases down to the effect of interest rate rises and the withdrawal of low rate cards.

However, it said that while borrowers may be concerned to see the average purchase APR surpass 30%, “it’s worth noting there remains a plentiful number of 0% introductory credit cards on the market”.

At current count, there are 72 options for borrowers (interest-free balance transfer deals) to choose from. This is unchanged from December, and means the number is up from 68 a year ago.

But, the average interest-free balance transfer term (the 0% window to pay off your debt interest-free) has dipped from 577 days in December to 564 days as of January 2023.

And Moneyfacts revealed the average balance transfer fee has also ticked up, from 2.16% last month to 2.2% now.

Elsewhere, there are 67 introductory interest-free purchase deals, up from 62 recorded in December 2021. But the average interest-free purchase days has also dropped slightly from 266 days in December to 259 today.

Less time to pay of debts before interest charged

Rachel Springall, finance expert at Moneyfacts, said: “The cost to borrow on credit cards has reached a record high, with both the average purchase APR (which includes card fees) and the average purchase per annum rate increasing.

“Borrowers may be concerned to see the average purchase APR surpass 30%, but it’s worth noting there remains a plentiful number of 0% introductory credit cards on the market. However, over the past few months, the interest-free terms on offer both for purchases and balance transfers have waned, so borrowers now have less time to pay off their debts before interest is charged.

“Those borrowers looking to take out a 0% introductory balance transfer card will be disappointed that the cost to move their debts is rising, with the average balance transfer fee also increasing to  the highest recorded since March 2021 when it was 2.23%.

“The average introductory interest-free balance transfer term of 564 days is at its lowest since December 2021, so despite these offers being typically sought after at this time of year, credit card providers have tightened the terms they are prepared to offer.”