Record High APR on Credit Cards
Fresh data from Moneyfacts reveals that the average purchase APR on a credit card has reached a record 36%, despite banks concurrently offering some of the longest interest-free deals seen in four years. The analysis exposes a sharp division in the market, with borrowers who do not switch potentially facing hundreds of pounds more in interest charges than necessary.
According to UK Finance, 48% of outstanding credit card debt attracted interest in March this year. This means nearly half of all UK credit card debt is incurring interest charges, highlighting a potential debt time bomb for millions of households.
Interest-Free Deals at Four-Year High
The average 0% balance transfer period has extended to 605 days – the longest since September 2022 – while interest-free purchase offers now run for an average of 303 days, also a four-year peak. These statistics indicate lenders are battling fiercely for new customers even as the fundamental cost of borrowing continues climbing.
Rachel Springall, finance expert at Moneyfacts, said: "Competition has ignited on introductory interest-free card offers which could help defuse the glaring debt time bomb facing households. This is great news at a time when the average interest rate charged on credit cards is at a 20-year high."
Potential Savings of £700
Moneyfacts calculates that someone carrying a £2,000 balance on a card charging the average 36% APR would pay almost £700 in interest over two years if they repaid a fixed £115 monthly. However, switching that debt to a 0% balance transfer card and repaying £150 a month could wipe out the balance in just over a year without racking up any interest charges.
The cost of moving debt is also on the decline. The average balance transfer fee has fallen to 2.48%, its lowest point in more than a year. A number of lenders are currently offering fee-free balance transfer deals, including Barclaycard, Virgin Money, Santander, NatWest and RBS.
Rising Demand for Debt Advice
The figures emerge amid growing concerns over household finances. Research cited by Moneyfacts revealed that younger borrowers are particularly susceptible to financial shocks, while debt charity StepChange has reported a 21% rise in people seeking debt advice over the past year.
StepChange found that 71% of its clients carried credit card debts and 53% had personal loan debts. Meanwhile, the personal loan market has stayed relatively steady, with the average rate on a £7,500 unsecured loan holding firm at 8.1% APR. However, the average rate on a £5,000 loan over three years has crept up from 10.2% in March to 10.5% today.
Expert Advice for Borrowers
Springall noted that many borrowers fail to grasp just how long debt can hang around when they only make the minimum repayments. She added: "Credit card holders who do not have a 0% offer and only pay the bare minimum back each month will have the debt sitting overhead for much longer than they might realise."
Springall advised that anyone considering taking out a loan should shop around thoroughly rather than simply relying on advertised rates. She added: "Consumers who become exposed to unexpected shocks and fear their debts will spiral out of control must seek debt advice for support."
