Credit Card Rates Reach Record Level

Mon, 08 Jun 2009

The average interest rate on a credit card has risen to more than 18 per cent, despite the Bank of England base rate remaining unchanged at 0.5 per cent for a fourth consecutive month, new research has revealed.

According to data from financial website Moneyfacts.co.uk, the average APR offered by UK providers has increased to 18.1 per cent, up from 16.3 per cent two years ago.

The group said the rise in average rates had been caused by a combination of card providers increasing the amount of interest they charged and withdrawing market leading deals, while newly launched cards have had higher rates than were previously seen.

Moneyfacts revealed that as many as 12 credit card providers have increased their rates in the past six months, including American Express, Bank of Scotland, Capital One Bank and Nationwide BS.

The website warned that customers who repay the minimum amount will be hardest hit with an additional £408 in interest now being added to the average credit card account of £2,000.

The rising cost of credit card borrowing comes despite the Bank of England confirming that the base interest rate would be held at its current level of 0.5 per cent - the lowest-ever in the institution's history - for another month following a series of dramatic cuts since October 2008.

Moneyfacts analyst Michelle Slade explained: "Rising unemployment means that the risk of customers defaulting on their card repayments has increased, which is being passed on through higher rates ."

"If customers are struggling with repayments, unsecured lending is one of the first casualties as customers fight to keep hold of their property."

"With only a handful of cards on the market linked to tracking base rate, very few have seen any benefit from the current all time low base rate ."

She added: "Competitive credit card deals can still be found on the market, with 0 per cent balance transfer deals available for 16 months and 0 per cent introductory purchase deals for 12 months, but with the increased risk of default, only those with exemplary credit histories are likely to be accepted for the best deals."
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