Despite the US central bank dropping interest rates, and the Bank of England keeping base rate at 0.75%, credit card companies have, in shock announcements, decided to increase their rates on purchases for many consumers.
According to a report from data website Moneyfacts, a number of credit card companies have increased their interest rates for customers who don’t pay back their bill in full every month. The average APR is now 24.7% – the highest seen since 2006.
In the last year, consumer credit card spending has increased. And with such a high number of customers struggling to pay back their debts, news of several credit card providers increasing their rates this month will be unwelcome, to say the least.
It’s estimated that 1.5 million people in the UK are currently dealing with debt and mental health issues simultaneously. A survey carried by the Adult Psychiatric Morbidity Survey also suggests the debt can increase the risk of mental illness by up to 3.5 times.
Moneyfacts say that, in the last three months, Tesco Bank removed its lowest interest Clubcard credit card from the market. In the same period, other providers, including Banks of Scotland, Halifax, and Lloyds, all increased their rates for purchases.
At the same time, many savings providers have been cutting their rates. In the UK, some of the leading choices for savings accounts have cut their interest rates so much that many fear they could be heading for the zero mark in the coming years.
Rachel Springall, a finance expert at Moneyfacts, said that 53% of cardholders are paying inflated interest rates on their credit card accounts. She noted: “Credit card customers should take every opportunity to pay more than the minimum repayment.”
“A borrower who makes a purchase of £3,000 on a typical credit card, and repays £100 per month, will have the debt linger for over three years, and it will cost them £970 in interest. This alone, then, should reaffirm the importance of clearing the debt as fast as possible, or to switching the debt over to an interest-free deal.”