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Credit Card Interest Rates Rise in the UK

Recently released figures show that the interest rates payable on British credit cards have reached the highest level in over a decade. In fact, consumer rates are now at their highest in 13 years.

At the time of the survey in September of this year, the average APR applicable to credit card purchases has risen to 24.7%. This compares to a figure from12 months ago of 23.4%.

The Reasons for This

With interest rates generally falling across the planet, it may seem surprising to see that credit card interest has grown. Indeed, negative interest rates have been in the news lately, as many countries have seen their borrowing rates dip below zero.

This trend has largely been blamed on sluggish economies and difficult global trading conditions, which has also led to growing interest in international debt recovery matters. The UK interest rate has remained at 0.75% recently. However, there are some reasons in the background that help to explain why credit card rates have been on the rise this year.

New legislation was introduced by the UK’s Financial Conduct Authority (FCA) in 2018. The idea was to help consumers to avoid getting stuck in a cycle of problem debt. At the time of issuing the new rules, the FCA estimated that they would help the public to save between £310 million and £1.3 billion in credit card interest each year.

However, this move to stop credit card debts from getting out of control has led to rates being increased in general. Many of the country’s major credit card providers have removed their best offers and raised the interest rates on their cards.

How Rates Have Climbed

For example, until recently the Tesco Clubcard credit card was the cheapest card on the market, with a 5.9% interest rate. However, this card has now been removed from this list of available products. 

Meanwhile, the rate on cards from the Bank of Scotland, Halifax and Lloyds Bank has increased by 3.5%, up to a new figure of 9.9%.

However, it seems as though more people are now making the effort to clear their outstanding credit card balances. This is reflected in the numbers, which show that the number of cards that interest is being paid on fell from 54.6% a year ago down to 53.4%.

This trend has also seen the growth of outstanding card balances drop from over 8% early in 2018 down to a current figure of 3.6%.

This is despite the British Retail Consortium pointing out that credit cards now make up over 20% of all retail sales in the country. With debit cards accounting for over 56% of transactions, cash payments are now in the minority, at just over 20%. It is the first time that credit card spending has outperformed cash transactions.

It should be noted that the new FCA rules protect anyone who been in persistent debt for 3 years or more. The card provider is obliged to offer their customer a way of repaying the debt in a reasonable period of time. If the balance cannot be paid off, the bank needs to look for ways of helping them, such as waiving interest or fees.