The average interest rate on a credit card has risen to more than 18 per cent, despite the Bank of England maintaining the base rate at 0.5 per cent for a fourth consecutive month.
According to analysis of the credit card
market by financial website Moneyfacts.co.uk, there has been an increase in the average rate to 18.1 per cent, up from 16.3 per cent two years ago.
This increase can be explained by a number of credit card providers raising their rates and simultaneously withdrawing some of their most competitive cards, while other providers being new cards to the market with rates higher than those seen previously.
Moneyfacts.co.uk has found that as many as 12 credit cards have seen their interest rate rise in the last six months.
Credit card holders who pay the minimum off their balance each month will be the hardest hit by the rise in cost of credit card borrowing, with an additional £408 being added to the average credit card account of £2,000 over the life of the balance.
Credit card companies do not appear to have taken into account the fact that the Bank of England
slashed interest rates from five per cent in September to 0.5 per cent in March, where they have since remained, and very few customers are benefitting from the small number of credit cards that track the base rate.
Moneyfacts.co.uk also predicts a rise in the number of borrowers who will be defaulting on their credit card payments, which has already increased, partly as a consequence of the higher rates, but also because throughout the credit crisis, unsecured lending is often one of the first financial commitments to be neglected as homeowners prioritise mortgage payments in order to keep their property.
But there is still hope for those looking for a new credit card, suggests Michelle Slade, analyst at Moneyfacts. "Competitive credit card deals can still be found on the market, she said, "with 0% balance transfer deals
available for 16 months and 0% introductory purchase deals for 12 months," but, she added, with the increased risk of default and lenders continuing to restrict lending, "only those with exemplary credit histories are likely to be accepted for the best deals."Compare credit card deals »
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