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Credit card borrowing costs rise to record high

Credit card borrowing costs rise to record high
Paloma Kubiak
Written By:
Paloma Kubiak

Credit card interest rates have risen to reach new highs, while the number of 0% purchase offers has stalled in the last three months.

In the three months to June 2024, the average purchase APR (which includes card fees) rose to 35.3% APR.

According to the data from Moneyfacts, this is the highest rate seen since it started collating the figures in June 2006.

It said a combination of card withdrawals and interest rate rises all contributed to the uptick from 35.1% APR recorded in May, and 34.7% APR in March. Indeed, compared to last June, the average interest rate has risen from 31.2% and from 26.7% in June 2022.

The average purchase rate has also risen from 25.7% to 25.8% in the month to June and is up from the 25.3% recorded a year ago.

On the number of deals available to borrowers, Moneyfacts revealed these remained at 58 in Q2, but added that this is less than the choice of 67 last year.

Further, the number of interest-free balance transfer offers fell from 61 to 60 during the three-month period. There are fewer options for borrowers to choose from than a year ago, down from 73 offers to 60.

And balance transfer fees have risen to 2.42% on average, up from 2.4% in March 2024 and up from 2.26% a year ago.

Turning to the average unsecured personal loan rate for £5,000 over three years, this is also up compared to the beginning of March 2024. The average rate on the £5,000 loan tier stands at its highest point in over a decade (March 2013 – 11.7%).

But average unsecured personal loan rates for £3,000 over three years (17.2%), £7,500 over five years (8.6%) and £10,000 over five years (8.6%) have fallen during Q2 2024.

Elsewhere, Moneyfacts revealed the average interest-free balance transfer term on credit cards rose to 522 days, from 517 days in March 2024, with terms down year-on-year.

‘Borrowers will need to carefully plan their repayments’

Rachel Springall, finance expert at Moneyfacts, said: “The cost to borrow on credit cards has reached a record high, making it vital for borrowers to repay their debt if it’s bearing interest, or switch it to an interest-free offer.

“However, the cost to transfer debts has also risen over the past quarter, and consumers looking for a 0% purchase offer will find the availability of products stalled. The cost of living may result in some borrowers turning to short-term credit, such as a credit card or their overdraft, but due to the cost of interest, these should only ever be used temporarily to cover essential or unexpected expenses.”

Springall added: “Borrowers will need to carefully plan their repayments to ensure they are in the best possible position to pay off their debts as soon as they can. One way to do this quickly is to change a minimum repayment to a higher fixed sum every month, which can be changed back should the need arise.”