The cut to the Bank of England Base Rate was meant to make borrowing cheaper, but credit card interest rates are steadily rising.
Banks and building socieities are putting up interest rates despite the Bank of England cutting the Base Rate to a record low.
Research by Moneyfacts has found that the average credit card purchase rate is at a record high of 22.8% APR.
“Borrowers using plastic are unlikely to be feeling the effects of a 0.25% cut, because the interest charged on credit cards tends to be linked to the risk the borrowers represent instead,” says Rachel Springall, finance expert at Moneyfacts.
“Only a small portion of lenders link card interest to Base Rate, so most customers won’t save any cash.”
Competition amongst credit card providers has been fierce in recent years leading to several incredibly long interest-free deals on balance transfer and purchase credit cards.
However, if you don’t have a special deal or your deal has runs out you could be paying a whopping interest rate of over 20% APR.
Rates are rising
Purchase and balance transfer terms are on the up, but so are interest rates.
|
|
September 2015 |
Today |
|
Average credit card purchase rate (APR) |
21.5% |
22.8% |
|
Average 0% introductory purchase term |
273 days |
280 days |
|
Average 0% introductory balance transfer term |
551 days |
584 days |
Be careful when you're choosing a card: just because it's a market-leading rate doesn’t necessarily mean it’s the right deal for you. Find out why in:When market-leading 0% balance transfer deals aren't worth going for.
What you can do about it
If you're paying interest on your credit card debts then you should reassess your finances. Average interest rates may be at record highs but there are plenty of 0% deals you may be able to move your debt to.
“Although interest is rising, there are still a significant number of cards offering interest-free deals that customers can compare, but they must take note of when the deal ends,” says Springall.
“Lenders can increase interest rates at any point if they feel there is more risk as a result of economic changes, which is why borrowers must be proactive at switching their debts.”
If you have built up a balance on your credit card that you can’t clear quickly then you should consider moving it onto a balance transfer credit card with a 0% period.
The longest and cheapest 0% balance transfer deal is currently 41 months offered from MBNA. It comes with a fairly hefty 3.49% balance transfer fee though.
If you can afford to pay off your debt in less than three and a half years look for a balance transfer card with a shorter 0% period and a lower balance transfer fee. For example, Halifax offers a card with a 0% balance transfer period for 25 months and no balance transfer fee.
Once you’ve moved your debt to a 0% deal make sure you clear it before the interest-free period runs out. The simplest way to do this is to take your debt and divide it by the number of months on the interest-free deal. That tells you how much you need to repay each month.
If you can’t clear the debt before the 0% period ends make sure you have a note in your diary to move the remaining debt to another interest-free balance transfer card.
Alternatively, if you're looking to make a big purchase and want to spread the cost with a credit card, go for a card offering a 0% period on purchases. Sainsbury’s Bank has the longest 0% offer at 27 months on its Nectar Purchase Credit Card.
“While there is indeed a saturation of interest-free offers available, it’s all down to the borrower to make sure they can tackle their debts by switching deals and repaying their balance as much as possible before interest applies,” says Springall.
“As a helping hand it would be great to see more providers encouraging their customers to make bigger monthly repayments, particularly if borrowers are unaware of how long their debt could hang over their heads.”
Compare a whole range of 0% balance transfer and purchase credit cards at loveMONEY today
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