Credit card and loan interest rates are rising
According to a financial news website, average rates for credit cards and personal loans are rising as households grapple with the rising cost of living.
In the credit card market, the average purchase APR (annual percentage rate) in June is 26.7%, Moneyfacts.co.uk said.
This is the highest rate since records began in June 2006 and includes card fees, the website added.
Several factors contributed to the increase, including rising interest rates and the scale of fees on new cards being launched, Moneyfacts said.
There have also been a series of increases in personal loan rates offered by lenders, according to the website.
Rachel Springall, finance expert at Moneyfacts, said: “The unsecured personal loan market has seen a flurry of rate hike activity during (the second quarter of 2022) including the £7,500 level, with a repayment term of five years, recorded several providers raising rates, including high street banks.
“The average rate on the £7,500 loan level now stands at 5.2%, an increase of 0.8 percentage points over the last quarter and stands at its highest level in six years ( since September 2016).
“This level is also widely used as a representative APR level by many loan providers, and traditionally lenders would be conscious to keep it competitive.
“However, during a cost of living crisis, the potential risk of borrower default is high, so lenders have decided to reprice in response.
“A few lenders who charge less than 3% remain in this space, but it is uncertain whether this will be maintained in the coming weeks.”
She added: “While the average purchase APR on credit cards reached a record high of 26.7% this month, it should be noted that only two credit card providers increased their rates. buying interest during the second quarter of 2022, so these and a combination of card withdrawals and fee adjustments were the main causes of the rise. »
Among the best news for credit card borrowers, the average duration of 0% balance transfer transactions has increased.
Ms Springall said: “Several providers improved their terms during the second quarter of 2022, seeing the average interest-free initial balance transfer duration increase to 613 days, the highest point since May 2018 (when it was 622 days).
“HSBC, Halifax, M&S Bank, Sainsbury’s Bank, Santander and Virgin Money have all increased offers to 0% for balance transfers, a few of which hold market leading positions.
“Consumers should be aware that the longest 0% offer may not be the best for them, especially since there are lower transfer fee options available in the market.”
The average credit card balance transfer fee is 1.95%, down from 2.12% in June 2021.
Ms Springall suggested anyone comparing offers would be wise to check their credit rating before applying.
She said: “The coming months are uncertain amid the rising cost of living, but it is wise to seek advice from a debt advice charity if borrowers are struggling or are worried about not unable to track their reimbursements.”