Average credit card and personal loan rates are on the increase as households grapple with the rising cost of living, according to a financial information website.
Across 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 started in June 2006 and includes card fees, the website added.
Several factors have contributed to the increase, including interest rate rises and the size of fees on new cards being launched, Moneyfacts said.
There has also been a spate of increases to the personal loan rates being offered by lenders, the website found.
During a cost-of-living crisis the potential risk for borrowers to default is elevated, so lenders have moved to reprice in response— Rachel Springall, Moneyfacts.co.uk
Rachel Springall, a finance expert at Moneyfacts, said: “The unsecured personal loans market experienced a spate of rate rise activity during (the second quarter of 2022), of which the £7,500 tier, with a repayment term of five years, recorded several providers increasing rates, including high street banks.
“The average rate on the loan tier £7,500 now stands at 5.2%, a rise of 0.8 percentage points over the past quarter and stands at its highest point in six years (since September 2016).
“This tier is also widely used as a representative APR tier by many loan providers, and traditionally lenders would be conscious to keep this competitive.
“However, during a cost-of-living crisis the potential risk for borrowers to default is elevated, so lenders have moved to reprice in response.
“A few lenders that charge less than 3% remain in this space, but whether this is maintained in the weeks to come is uncertain.”
She added: “While the average purchase APR on credit cards reached a record high of 26.7% this month, it is worth noting that only two credit card providers increased their purchase interest rates over quarter two 2022, so these and a combination of card withdrawals and fee adjustments were the main causes for the rise.”
In some better news for credit card borrowers, the average length of 0% balance transfer deals has increased.
Ms Springall said: “Several providers improved their terms during quarter two 2022, seeing the average interest-free introductory balance transfer term rise 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 all increased 0% offers for balance transfers, a few of which hold a market-leading position.
“Consumers must be conscious that the longest 0% offer may not be the best for them, particularly as there are lower transfer fee options available on the market.”
The average credit card balance transfer fee is 1.95%, down from 2.12% in June 2021.
Ms Springall suggested anyone comparing deals would be wise to check their credit score before they apply.
She said: “The months ahead are uncertain amid the rise in the cost of living but seeking advice from a debt advice charity is wise should borrowers be struggling or fear they will be unable to keep up with their repayments.”
