Average Credit Card Interest Rates Hit All-time HighPersonal_Finance / Credit Cards & Scoring Feb 29, 2016 - 09:28 AM GMT
The credit card market continues to be inundated with introductory interest-free deals, but behind the scenes the latest research from Moneyfacts.co.uk can reveal that the average purchase rate on all credit cards has hit an all-time high of 21.6% APR*.
Cardholders with a high interest credit card may not be fully aware of how much they pay over the long term or how much they could save by switching to a better deal. For instance, sticking with a high interest card could mean that it will take almost four years to clear a debt of as little as £1,000.
Our calculations show that borrowers who are being charged 21.6% APR on a £1,000 debt, but who then switch to a low rate credit card at 6.4% APR, could save a massive £276 in interest charges. And if customers have a store card charging 29.9% APR but then switch to a cheaper alternative, they could save a grand total of £510. Better still, if they applied for Halifax’s 40-month 0% interest balance transfer card, which is a Best Buy, they would only have to pay a £28.50 fee, provided they clear the debt before the interest-free offer ends.
Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:
“Consumers who struggle with household debts are unlikely to be able to afford the luxury of paying more than the minimum repayment on their credit card. However, those who cannot afford to pay back more each month are likely to end up with the debt hanging over their heads for a significant period of time.
“Not all customers will pre-plan their spending and they may not have an interest-free deal ready to use. In addition, not all borrowers will be offered the best rates, and some may not have the shiniest credit rating, which all leads to more expensive deals being turned to. For this reason, borrowers would be wise to get a credit check before applying for credit so that they can get an idea of what their borrowing footprint looks like, and therefore, what kind of deal they are likely to secure. Borrowers should also be prepared to do the maths to work out what the true cost of their borrowing will be.
“Some of the highest charging cards that may be in most people’s pockets are store cards. While these cards are certainly great for upfront discounts at the till, these benefits are likely to be wiped out by interest charges if borrowers keep a debt for too long. Getting on top of debts should therefore be the top priority of any spender. Taking advantage of more cost-effective cards and spreading a debt on an interest-free deal means consumers can then concentrate on clearing it for good without huge amounts of interest adding to the bill.
“Those who move their debts to a better deal will clear a balance much faster than if they stayed put, and they will then be able to put aside some savings for spending in the future, which means they won’t have to rely on the plastic quite as much.”
*Moneyfacts.co.uk’s records on the average credit card APR date back to 2006.
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