Bankrupting the Common People

Credit Card Interest Rates Hit a 12-Year High

The average interest on credit cards has soared to 18.8 per cent

February 16, 2010

Daily Mail - Credit card interest rates have climbed to a 12-year high, leaving millions facing crippling repayments on their debts.

Despite historically low Bank of England base rates, the average interest charged on a credit card has soared to 18.8 per cent - the highest level since 1998. Some consumers now paying more than 40 per cent on the cash they have borrowed.

As a result of recent hikes, the cost of paying on plastic has gone up by more than a quarter in the past four years.

Research by financial product comparison firm Moneyfacts found credit card rates were 14.8 per cent in February 2006.

This means that credit card borrowers with a debt of £5,000 on their card -- who make only the minimum repayment each month -- will now repay an additional £2,289 over the life of the debt compared with what they would have paid four years ago.

Commenting on the figures, Moneyfacts.co.uk spokesman Michelle Slade said:

'The UK continues to suffer from a high level of unemployment and providers are worried about the increased risk of customers not repaying their debts.

'The increased risk continues to be passed on to both new and existing credit card customers through higher rates.'

'Other charges such as balance transfer, cash withdrawal and foreign transfer fees also continue to go up, leaving customers paying more across the board.'

The rise in card interest rates comes as another report indicates that one in five adults have three or more cards.

In a survey of 2,000 people by comparison firm moneysupermarket.com, the results indicated that 14 million consumers use credit cards to pay for day-to-day expenses.

Peter Harrison, credit cards expert at moneysupermarket.com, said:

'Holding more than one credit card can be a good idea; if you are using one for balance transfers and one for purchases, and have suitable 0 per cent deals on both.'

But with rates on the up, it means that borrowers could be hit by heavy interest repayments over the coming year -- at a time when many are already suffering as a result of the economic conditions.

The Mail revealed before Christmas that Capital One, one of the most popular credit cards in circulation, was increasing rates for many customers. Its rates soared by as much as 7 percentage points, with some users being charged almost 40 per cent.

As the average credit card interest rate is at its highest since February 2008 -- during a time when the base rate is only 0.5 per cent -- the banks are reaping vast profits.

The increases make a mockery of Gordon Brown's claims that he would take steps to ensure credit card companies treated customers fairly. In October, he promised a 'new responsible approach to lending'.

James Daley, of consumer campaigners Which?, criticised the increases.

'It comes at the worst time for consumers who are already suffering from higher unemployment, rising inflation and poor savings rates,' he said.

Phil Hammond, Shadow Chief Secretary to the Treasury, said for 13 years the Prime Minister 'borrowed and spent as if there were no tomorrow -- and encouraged householders to do the same'.

He added: 'Now Britain has the highest level of household debt of any major economy.'