Credit Card Interest Rates Hit 18-month High

By: MoneyFacts

While there is an abundance of interest-free purchase and balance transfer deals hitting the market, consumers need to be aware that the average purchase rate on credit cards has hit an 18-month high.

With customers generally taking advantage of interest-free deals, lenders need to sustain the offers, so rates are rising.

Adding to the interest rate hike is that increasingly providers are allowing customers to pay back less each month, keeping the debt on the books for longer.

Rachel Springall, finance expert for Moneyfacts.co.uk, commented:

“Shoppers may be relying on their credit cards to cover Christmas this year; while this method may seem secure and straightforward, customers should be aware that the interest they are being charged is rising.

“If in doubt, shoppers should opt for an introductory interest-free purchase card, which gives them some breathing space so they can focus on repaying solely the amount they have spent.

“Borrowers with a £5,000 debt on their card, who repay the minimum* each month, will now repay an additional £692 over the life of the debt compared to a year ago.

“Since last year, the majority of credit card lenders allow their customers to pay as little as 1% of the original debt each month, which means card holders will be taking longer to repay their balance and are incurring interest for a longer duration.

“It is more important than ever for customers to decide whether to move their existing debt to a balance transfer card and aim to repay the debt before the interest-free period ends.

“Balance transfer fees should also not be overlooked. Based on a debt of £5,000 with a 3% fee, it would cost £150 to move the debt and that’s before interest is applied.”

*based on a minimum repayment of 2.5%, min £5

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