Credit card rates average over 18%
Updated on 04 June 2009
The average interest rate charged on a credit card has broken through the 18% barrier as providers continue to hike their rates and withdraw competitive deals, research found.
The average interest charged on credit card purchases is now 18.1%, up from 17.9% in May and 16.3% two years ago, according to financial information group Moneyfacts.co.uk.
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 new cards which have come on to the market recently have had higher rates than were previously seen.
During the past six months 12 card providers have increased the interest rates they charge, including big names such as American Express, Capital One Bank, Nationwide and Halifax, despite the Bank of England base rate falling sharply during the same period.
The rise in interest rates means someone with a £2,000 credit card balance who makes only the minimum repayment each month will pay an additional £408 in interest over the life of the balance.
Michelle Slade, analyst at Moneyfacts.co.uk, said: "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 that there were still competitive credit card deals available, with some providers offering 0% balance transfer rates for 16 months, and 0% interest on purchases for 12 months as introductory offers.
But she warned that with the increased risk of people defaulting on their debt, only people with exemplary credit histories were likely to be accepted for the best deals.
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