Lingering Debt Warning as Credit Card Interest Rates Hit Record High
Personal_Finance / Credit Cards & Scoring Oct 24, 2017 - 02:22 PM GMTThere has been a worrying rise in the number of consumers reliant on credit cards to keep their heads above water, as they stand a higher chance of being unable to repay their debt every month*.
Those who are only able to repay a very small portion of their card debts will find they have many years of debt ahead of them. To make matters worse, the cost of credit is rising, with moneyfacts.co.uk data showing that the average credit card APR has hit 23.0% APR, the highest recorded rate in over ten years**.
Borrowers seeking out a better card will find some providers charge significantly lower interest rates or even offer introductory interest-free terms. Indeed, if borrowers switched from a credit card charging 23.0% APR on a £1,000 debt to one charging 5.7% APR, they could save a colossal £420 in interest charges and shave a year off their repayment period.
Rachel Springall, Finance Expert at moneyfacts.co.uk, said:
“Countless borrowers could well be relying on credit cards to make ends meet as the cost of living continues to rise. While there has been a huge injection of introductory interest-free offers into the market over the last few years, which can help spread the cost of purchases, this has not stopped a surge in credit card interest away from the timed offers. What’s more, further rises may occur in response to any base rate hike, as it gives lenders an excuse to pass on higher interest charges to consumers.
“There is no telling what the state of the credit card market may be in a few years’ time, given increased scrutiny over the number and length of interest-free offers and what seems like an endless volume of easy credit. This means that those with debts should never assume that they can always hop from one lengthy interest-free deal to another with ease and make the most of these offers while they still can.
“A tightening of lending on credit cards could be the equivalent of knocking down a pillar of stability from under those people barely managing due to the rising cost of living and little to no increase to their salary. Credit cards have become a staple choice for borrowers, so a sudden change in their accessibility may turn borrowers to more expensive short-term lending, such as overdrafts and payday loans.
“Consumers with debt troubles are clearly vulnerable and they would be wise to seek out financial advice before they damage their credit score beyond repair. Lenders should also be on hand to work with consumers to make sure they are not borrowing more than they can afford to repay. It’s always worthwhile for borrowers to check their credit report, get a credit repair card to build a good financial footprint or consolidate their debts using an unsecured personal loan if they run into difficulties.”
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