Credit card

Credit card borrowing is rising, but so are interest rates

Credit card borrowing is on the rise amid the cost of living crisis, but so is the cost of servicing those debts as lenders take a more cautious stance on handing out money.

Average credit card interest rates hit 22% last month, the highest in nearly 25 years, while credit card borrowing is rising at the fastest pace in 17 years, according to Bank of India. ‘England.

Its figures show that a further £700million was put on credit cards in August, bringing total outstanding credit card borrowing to £5.9billion year-to-date.

This is more than double the pre-pandemic total for the same period and is equal to the total net credit card borrowing for the previous five and a half years combined.

Including fees, the average rate for all credit card types rose to 29.8% this month, from 26% in January and 25.2% two years ago, according to Money facts.

The spike in the cost of borrowing comes at a time when demand for credit is rising, with many turning to plastic to cover their costs as high inflation and soaring energy bills take a heavy toll on their finances.

A recent ClearScore survey found that around one in ten people plan to use credit cards, loans or overdrafts more than usual to cope with future cost increases, rising to 15% of people with poor credit rating.

“With the cost of living crisis making headlines and budgets under pressure from various angles, there may well be consumers relying on their credit cards to make ends meet,” said Eleanor Williams. , finance expert at Money facts.

But those who turn to credit cards may find it more expensive to borrow, even if Money facts said they had not seen so much movement in card buying interest rates in recent weeks.

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Since the beginning of October, some card providers have increased their purchase interest rates or reduced the duration of their offers to 0%.

Amex raised the interest rate charged on credit card purchases on most of its credit card transactions to 1.98% from 1.94%, according to an analysis by Money facts.

HSBC also increased the purchase rate on its balance transfer credit card to 1.80% from 1.73%, while reducing the length of the 0% interest period from three months to 30 months. .

Tesco Bank has withdrawn its Clubcard balance transfer and shopping credit card, while raising rates on most of its other transactions and reducing its balance transfer terms to 0%.

Laura Suter, head of personal finance at AJ Bell, said: “Credit card usage is booming as more people turn to plastic to pay for their basic needs each month amid the current price spike.

“As the prime rate has gone up, banks have increased the rates they charge on credit cards. This is always how banks profit when interest rates rise, as they quickly pass rate hikes on to mortgage and indebted customers, but are much slower to pass the benefits on to savers – if they even rise. these rates.

“And we are far from the peak, we will see credit card rates rise from here as the Bank of England raises rates again and more and more customers go into debt.”

Rachel Springall from Money factsHowever, said credit card rates are not necessarily rising because of recent base rate hikes by the Bank of England, but rather because lenders are becoming more cautious given the economic downturn.

“The coming months are unknown, and lenders may rethink their attitude to risk on unsecured lending due to rising costs of living and interest rate uncertainties, so borrowers might not see the lucrative deals last too long,” she said.

However, she also warned not to panic about the availability of credit cards as there are still many balance transfer credit cards available in the market.

“While we have seen some withdrawals and reductions in balance transfer terms to around 0% since the start of October, there have also been launches of long offers and low transfer fee alternatives. .

“As with any deal, its imperative borrowers are weighing the upfront cost of moving their debts and perhaps considering lower fee offers versus those with longer 0% terms.”

She advised anyone struggling with debt to seek charity advice and speak to their lender as soon as they feel unable to manage their repayments.

October’s Best Credit Card Buys

0% balance transfer and 0% purchase

Sainsbury’s Bank: 0% on balance transfers and purchases for 24 months

0% Balance Transfer

Sainsbury’s Bank: 0% for 34 months, 2.88% charge on balance transfer of at least £3.00

Cash back

American Express Platinum Refund:

  • Introductory 5% for 3 months on spend between £1 and £2,500 per year
  • 0.75% standard on spend between £1 and £10,000 per year
  • 1.25% standard on spend over £10,001 per year


British Airways American Express: Purchase APR 26.6%, Avios rewards

Data was provided by Moneyfacts, correct as of October 25, 2022