The cost of borrowing on a credit card has hit an all-time high while personal loan rates are also up to a decade-high level, according to Moneyfacts.
Credit card crunch
Credit cards saw significant rate rises and tightening of criteria in the fourth quarter:
- The average length of zero per cent introductory balance transfer terms fell to the lowest level recorded in over eight years – 508 days from 543 in September
- Balance transfer fees rose to 2.38 per cent from 2.16 per cent a year ago
- The average interest-free purchase term fell to 244 days, down from 250 days in September
- In the fourth quarter, the average purchase APR (including card fees) rose to an all-time high of 34.6 per cent APR
- There are also fewer credit cards to choose from compared to this time last year, with just 60 on offer, the lowest figure in two years.
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers looking to spread the cost of their purchases or to move their existing credit card debt to an interest-free balance transfer deal may be disappointed to see a fall in both the number of deals and terms on offer.
“Interest rate rises should encourage borrowers to compare and switch deals, such as with a zero per cent balance transfer offer, but consumers must watch out for upfront balance transfer fees.”
Loan rates rise
The average unsecured personal loan rate (in the £5,000 loan tier) now stands at its highest point in over 10 years, at 11.2 per cent, Moneyfacts revealed.
Rates also rose over the quarter in the £7,500 and £10,000 borrowing tiers.
Springall added: “Borrowers comparing loans will need to think carefully on whether these are the right choices for their circumstances, particularly as rates are on the rise.
“An unsecured personal loan can provide a structured repayment plan, but a credit card will offer much more flexibility.
“The average rate on a loan of £5,000 with a repayment term of three years has risen by over four per cent since December 2021, so a loan now costs over £300 more in interest over a three-year term.”
