Credit card interest rates at ten-year high
CREDIT card interest rates have surged to a ten-year high, fuelling fears that the debt bubble is about to burst.
The average credit card APR is 23 per cent, says research group Moneyfacts.
It came as credit rating agency Standard & Poor’s (S&P) said Britain’s £200billion of consumer debt was unsustainable and should raise ‘red flags for lenders’.
With the Bank of England expected to raise rates next month, credit card charges could jump even higher.
Five million Britons are struggling to pay off credit cards – facing £3.50 of debt for every £1 borrowed – and last night experts warned this could be the tipping point for financial disaster.
Rachel Springall of Moneyfacts said: ‘Countless borrowers could well be relying on credit cards to make ends meet.
‘A tightening of lending on credit cards could be the equivalent of knocking down a pillar of stability from under those people barely managing due to the rising cost of living and little to no increase to their salary.’
In 2006 cards typically charged 15.3 per cent, despite a Bank of England base rate of between 4.5 per cent and 5 per cent, compared with 0.25 per cent today.
Miss Springall said further rises could force the vulnerable to rely on more punishing payday loans and overdrafts instead. Regulators are increasingly worried about families loading up on credit they may never pay back.
The Financial Conduct Authority watchdog last year found about two million cardholders were behind on payments or had defaulted altogether in 2014. Another two million were using at least 0 per cent of their credit allowance for a year or more while making interest payments, while 8. per cent of active credit cards in January 2015 – 5.1 million accounts – will not see their balances cleared for more than a decade.
Consumer credit – debt on cards, loans, car finance and overdrafts – is growing at 10 per cent a year but household incomes are rising at closer to 2 per cent.
‘We believe the double-digit annual growth rate in UK consumer credit would be unsustainable if it continued at the same pace,’ S&P’s report said yesterday. It said losses could be sharp and sudden if the market takes a turn for the worse.