The interest rate that providers charge on credit card debts has now reached the highest level in 13-years, even though the Bank of England base rate remains at the lowest level in history. According to Moneyfacts.co.uk, the average interest rate is now 18.9%, which is 4% higher than the rate just five years ago. The lenders claim to be worried about the amount of customers that default on their debt…
The study found that this was the average rate that is given to new customers and many existing card holders have been given a significantly higher rate. The tightening of lending criteria has made it a lot harder for borrowers to move to other providers, so many are now stuck with the higher interest rates. Until recently customers on the highest rates would have found it easier to move to an alternative provider for a lower rate.
The rates have been steadily rising since the start of the recession in 2008 to cover for the possibility of more customers being unable to repay their debts. Some banks are effectively charging a rate of 50% after annual fees and other charges are applied.
According to their calculations, Moneyfacts.co.uk reckons that a borrower with £5,000 of debt who pays the minimum each month will repay an additional £2,360 compared to February 2008. Since the start of the year, the majority of credit card providers are now implementing a positive order of repayments. This has reduced their income from credit card holders, so the increasing rates are a way of making more money from existing customers.