Credit card rates hit highest level since 1998
The latest Bank of England figures reveal that quoted household interest rates on credit cards rose significantly in July and are now at their highest level in nearly two and a half decades.
The analysis from Freedom Finance, one of the UK’s leading digital lending marketplaces, found that average credit card rates jumped 0.23 percentage points from June to hit 21.66% in July – the highest average monthly rate since December 1998 (22.19%).
Interest rates on other forms of consumer credit are also rising rapidly. While personal loans remain low on a historical basis, the average quoted rate for a £10k personal loan grew to 4.18% in July and is now at its highest level in over six years (4.28% in June 2016).
The average rate for a £5k personal loan also ticked up by 0.07 percentage points to 8.27% in July and is at its highest level since the start of 2018.
Average overdraft rates spiked in April 2020 when new regulations were introduced but they have been consistently rising to new highs even since then. They stalled in July at 35.28%, the same rate as June, although this remains an all-time peak.
The analysis comes after data from the ONS last week found that around six million people were using more credit than usual because of the cost-of-living crisis.
David Hendry, chief marketing officer at Freedom Finance, said: “In the current cost-of-living crisis and rate-rising environment, it is more important than ever that people make good financial decisions
“With credit card rates at record highs in this millennium, it is crucial that people take all necessary steps to get the most suitable product for their circumstances.
“There are hundreds of different credit cards out there so consumers should be shopping around and using digital marketplaces to access the best rates for a card that will suit their purposes and situation.
“This may vary, for example, depending on whether the cardholder is paying off the balance in full every month or not. Rewards like cashback are likely to be a more important consideration for people who are paying it off in full, while those who don’t will be more impacted by the interest rate.
“Customers should also make sure they are benefitting from the latest technologies such as soft searches and open banking when using these services. It means customers can shop around and see only the products that they are eligible for without the fear of a declined application or damaging their credit score.
“It will be a difficult year ahead for household budgets and the lending industry has a vital, positive role to play in helping people manage their money through this period. Consumers can then make the credit market work for them by having confidence they are getting the right credit product for the right reason on the best terms.”
