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Credit card borrowing cost at record high

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The cost of borrowing money on a credit card has reached a record high, at a time when more households may need finance amid the cost-of-living crisis, while lenders forecast default risks.

The average purchase APR, including card fees, has risen to an all-time high of 30.3% APR, according to Moneyfacts which has collated the data since June 2006.

It has climbed from 29.8% in November, 26.2% a year ago and from 25.1% in December 2020.

Meanwhile, the average purchase rate per annum has also reached a record high of 24.6%, climbing from 23.9% in September and 22.6% in December two years ago.

Moneyfacts noted that this is the effect of interest rate rises, withdrawal of low rate cards, and new cards launched.

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, up from 68 a year ago, and 67 interest-free purchase deals, up from 62 recorded in December 2021.

Less time to pay off debt before interest charged

But Moneyfacts noted that 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.

The average interest-free balance transfer term on credit cards fell to 577 days, from 612 days in September. This is the lowest since December 2021 when the figure stood at 577.

Meanwhile the average interest-free purchase term on credit cards fell to 266 days, from 295 days in September, and terms are down year-on-year.

Elsewhere, Moneyfacts revealed balance transfer fees have risen to 2.16% on average, up from 1.96% a year ago. It said this is the highest recorded since March 2021 when it was 2.23%.

Rachel Springall, finance expert at Moneyfacts, said: “Those borrowers looking to take out a 0% introductory balance transfer card will be disappointed that the cost to move their debts is rising.

“The average introductory interest-free balance transfer term of 577 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. Shoppers looking to spread the cost of their purchases now and leading into the New Year will also find terms on 0% introductory purchase offers have worsened during Q4 2022, so they have around one month less to pay back their debt before interest applies compared to September 2022.”

Loans more expensive as default risk elevated

Moneyfacts data also revealed average unsecured personal loan rates for £5,000 over three years, £7,500 over five years and £10,000 over five years, are up compared to the beginning of September 2022. Both the average rates on the £7,500 and £10,000 loan tier now stand at their highest point in 10 years (December 2012 – both 7.6%).

Springall added: “Lenders typically increase rates on loans when the potential risk for borrowers to default is elevated, so it’s not too surprising to see rates rise amid a cost-of-living crisis.

“As the start of 2023 draws closer, it will be interesting to see how loan and credit card providers adjust their offerings to entice new business at a time when uncertainties surrounding borrowers’ ability to pay off their debts remains.”

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