A new report has shown that recent interest rate hikes in the UK are now being reflected in consumer credit card and loan rates. The data comes from Moneyfacts.co.uk, which shows that interest rates on these types of borrowing have increased as households continue to struggle financially.
According to the site, the average APR on credit cards for June stands at 26.7%, the highest rate since 2006, when records began. Officials from the company said several contributory factors had led to the increases, including the series of recent interest rate rises from the Bank of England and the level of the fees on new credit cards being introduced to the market.
Increases on personal loan rates
It was further noted that there had been interest rate increases on personal loans, with this market seeing a spate of rate hikes.
Moneyfacts finance expert, Rachel Springall, said: “The unsecured personal loans market experienced a spate of rate rise activity during (the second quarter of 2022), of which the £7,500 tier, with a repayment term of five years, recorded several providers increasing rates, including high street banks. The average rate on the loan tier £7,500 now stands at 5.2%, a rise of 0.8 percentage points over the past quarter and stands at its highest point in six years.”
Springall added that while some lenders were still charging lower rates of less than 3%, it was uncertain whether this would change in the coming weeks.
People more likely to default on repayments
One of the other things that Springall pointed out was that some card providers had moved to increase rates because of the current economic climate. She said that with inflation soaring and interest rates rising, more people were at risk of defaulting on their credit card and loan repayments. This may have triggered a response from lenders and contributed to the recent hikes.
While the rate increases come as bad news for borrowers, Moneyfacts also provided some better news for credit card users. According to the data, the number of 0% balance transfer deals has increased, with several providers improving their terms over the second quarter of this year. The average 0% balance transfer term has risen to 613 days, the highest it has been since May 2018, when it stood at 622 days.
Speaking about the balance transfer deals, Springall said, “HSBC, Halifax, M&S Bank, Sainsbury’s Bank, Santander, and Virgin Money all increased 0% offers for balance transfers, a few of which hold a market-leading position. Consumers must be conscious that the longest 0% offer may not be the best for them, particularly as there are lower transfer fee options available on the market.”