Credit card interest rates hit record high
Analysis by data firm Moneyfacts shows the average APR rose to 24.7 per cent in September, up from 23.4 per cent a year ago, to reach the highest level since records began in 2006.
Between June and August, several providers significantly hiked the rates they charge some customers to borrow.
For example, Bank of Scotland, Halifax and Lloyds Bank increased the purchase rate on their credit cards from 6.4 per cent to 9.9 per cent, while the APR on MBNA’s 0% balance transfer cards went from 19.9 per cent to 20.9 per cent.
During the same period, Tesco Bank withdrew its Clubcard Credit Card charging 5.9 per cent, which was the lowest rate on the market.
While these changes are bad news for borrowers, the number of people paying credit card interest has slightly fallen.
Data from UK Finance shows the proportion of credit card balances that bear interest has decreased to 53.4 per cent from 54.6 per cent a year ago.
Rachel Springall, finance expert at Moneyfacts, said: “Consumers who turn to credit cards for their everyday purchases will find that the cost to borrow is starting to rise.
“Credit card customers should take every opportunity to pay more than the minimum requirement, particularly if they have an interest-bearing card.
“A borrower who makes a purchase of £3,000 on a typical credit card and repays just £100 per month will have their debt linger over for three years and it will cost them £970 in interest.
“This alone then should reaffirm the importance to clear debts faster or take advantage of an interest-free deal to give customers more time to spread repayments.”