Interest on credit cards reaches a record high

CONSUMERS are paying record high interest rates on credit cards.

As Britons begin to spend more on credit after years of post-recession caution, research shows it will cost them more than ever.

Experts warned that banks were luring borrowers with interest-free periods of up to three years, but then recouping their costs by ramping up interest rates.

They said thousands risked being caught out by sky-high charges if they did not pay off their debt or transfer the balance when their interest-free offer expired.

The average interest charged on a credit card is now 20.6 per cent APR, according to data compiled by financial website Moneyfacts.co.uk. This is up from 15.3 per cent in June 2006, when records began, and 19.9 per cent last year. The APR, or annual percentage rate, includes interest and also any extra charges such as arrangement fees.

Rachel Springall, from Moneyfacts.co.uk, said: ‘The longest interest-free deals are getting the headlines, but customers need to be aware of costs that will come into play after the deals end.

‘Borrowers would be wise to make a note of when their deal ends and pay off any balance before this date to avoid interest. Although some cards offer a good 0 per cent introduc-

‘Be aware of costs’

tory deals for balance transfers, customers need to assess the overall package.’

Barclaycard, Halifax and Virgin now offer 36-months interest-free when customers transfer an outstanding balance from another bank, while Santander offers an interest-free period of 23 months for customers opening a new credit card account.

But while banks compete to offer the longest interest-free periods, they have offset these costs by increasing interest rates and withdrawing reward schemes.

Miss Springall said: ‘A measly 7 per cent of credit cards currently offer cashback and just a third offer rewards. Gone are the days when you had a choice of rewards and the ability to earn up to 6 per cent in cashback.’

Households are expected to spend more over the coming months as confidence in the economy returns. A survey by price comparison website Money-Supermarket. com suggested that 13million Britons would increase their debt this year – a 40 per cent rise on 2014.

A separate study by YouGov and the Centre for Economics and Business Research found people’s optimism in the economy is increasing. One in eight also said their household financial situations had improved in the past month – the highest percentage since 2009.