Despite interest rates being at a record low, credit card rates are at their highest for 12 years, according to new figures from the personal finance site moneyfacts.co.uk, the UK's leading independent provider of personal finance information.
According to the research, the average APR on credit cards is now 18.8 per cent, the highest since February 1998. In February 1998, the average credit card rate was 21.1 per cent when the Bank of England base rate was 7.25 per cent.
Having fallen to a low of 14.8 per cent in February 2006 – when Band of England base rate was 4.5 per cent - rates have been climbing steadily ever since. In February 2008, the average APR charged on cards was 16.8 per cent, with the Bank of England's base rate at 5.50 per cent.
Today, the average APR on credit cards is now 18.8 per cent while the base rate is just 0.5 per cent.
"The UK continues to suffer from a high level of unemployment and providers are worried about the increased risk of ¬customers not repaying their debts," said Michelle Slade from Moneyfacts.
"The increased risk continues to be passed on to both new and existing credit card customers through higher rates."
She said borrowers with £5,000 debt on their cards who repay the minimum each month will have to pay an additional £2,289 over the life of the debt, when compared to February 2006.
"Other charges such as balance transfer, cash withdrawal and foreign transfer fees also continue to go up, leaving customers paying more across the board," Slade said.
Price comparison website moneynet.co.uk says that, while the average purchase rate for new customers is now approaching 19 per cent APR, this is far from the real picture as applicants with a less than squeaky clean credit record will end up paying much more.
“Just because you sign up to a card with an attractive rate, it doesn't mean it's going to remain that way,” said Andrew Hagger of
Moneynet.co.uk.
“Increasing numbers of customers are receiving notification that their rate is being hiked, even though they’re adhering to the terms and conditions of their agreement.
“With the UK suffering from a surge in unemployment and the potential of more job losses to come if public spending is curtailed, just as with unsecured personal loans, it's no surprise to see [credit card] rates remain stubbornly high.
“However if you've been managing your card in accordance with your agreement, why should you be expected to pay a vastly increased rate to subsidise lenders mistakes and other customers bad debts?
“Cardholders are having a tough enough time as it is at the present, without greedy card providers sticking the knife in.”
Check out the latest credit card offers by receiving our
MoneyMaker newsletter. You could save hundreds each year.
