Consumers who rely on credit cards for shopping are now facing exceptionally high interest rates.
Moneyfacts, an analyst firm, reports that the average credit card interest rate has surged to 30.4%, up from 26.2% compared to last year. This figure is the highest recorded since Moneyfacts began collecting data in June 2006.
The rise in interest rates comes as credit card purchases skyrocketed before the holiday season, with consumers spending £1.2 billion in November alone. This amount was three times higher than the previous month, as noted by the Bank of England.
Interestingly, these increased credit card purchases occurred despite a 0.4% drop in retail sales during November, attributed to higher costs of energy, food, and housing. Overall, consumer borrowing, including car finance and personal loans, rose to its highest level since July 2022, reaching £1.5 billion.
Given the rising interest rates, experts are advising individuals burdened with expensive debt to consider consolidating to more affordable options as their attractive, interest-free periods draw to a close. Failure to do so could result in accumulating higher interest repayments on their debt.
However, it is worth mentioning that the availability of interest-free terms has also decreased, giving borrowers less time to repay their debts before interest kicks in. Moneyfacts discovered that the average balance transfer term has hit its lowest level in a year at 577 days. Meanwhile, the average transfer fee has risen to 2.16%, the highest figure since March 2021.
Rachel Springall, a representative from Moneyfacts, stated that “the interest rates for unsecured personal loans, for borrowers seeking to consolidate their debts, have risen during the final quarter of 2022.” As a result, the average interest rate for a £10,000 loan has reached a 10-year high of 7.3%.
Consumers find themselves increasingly reliant on credit cards for spending, as the cash savings accumulated during the pandemic continue to dwindle. Official data reveals that the average balance saved in a cash ISA declined by almost 10% in the 2020-2021 tax year, amounting to £4,568.
Nationwide conducted research which revealed that a third of purchases made in 2022 were made using credit cards or “buy now, pay later” services.
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