Cost To Borrow Rises Across Credit Cards And Loans

27th September 2023

Moneyfacts UK Unsecured Lending Trends Treasury Report data, which studies the UK personal finance market (Credit Cards, Personal Loans and Overdrafts), reveals the cost to borrow on credit cards and unsecured loans has risen during Q3 2023.

Between the start of June and the start of September 2023 (Q3 2023), the average purchase APR (which includes card fees) rose to an all-time high of 31.8% APR, according to our records, which go back to June 2006. The average purchase PA rate rose to 25.448%, a record high.

The average interest-free balance transfer term on credit cards fell to 543 days, from 553 days in June, the lowest since March 2021 (530). There are fewer options for borrowers to choose from than a year ago, down from 73 offers to 63, now at its lowest figure since September 2021 (61).

The average interest-free purchase term on credit cards rose to 250 days, up from 249 days in June, but terms are down year-on-year. There are fewer options for borrowers to choose from than a year ago, down from 65 offers to 58, its lowest point since August 2021 (58).

Balance transfer fees have risen to 2.29% on average, up from 1.99% a year ago, now the highest recorded since November 2020, also 2.29%.

Average unsecured personal loan rates for £5,000 over three years, £7,500 over five years and £10,000 over five years are up compared to the beginning of June 2023. The average rate on the £10,000 loan tier stands at its highest point in over 10 years (January 2012 - 8.4%).

Rachel Springall, Finance Expert at Moneyfacts, said "The cost to borrow is on the rise across credit cards and unsecured personal loans, which will come as disappointing news to consumers. Borrowers now have fewer 0% interest-free credit card offers to choose from and less time to repay their debts before interest applies. The availability of credit cards that offer a 0% interest-free balance transfer deal has fallen to its lowest point in two years, and the average term to repay debts before interest applies is at its lowest since March 2021. These drops may well be down to a more cautious outlook by providers amid a cost of living crisis.

"Unsecured personal loans remain a good option for borrowers to consolidate their debts, but year-on-year the average rate on a loan of £10,000 with a repayment term of five years has risen by around 3%, which now costs almost £800 more in interest over a five-year term compared to a loan taken out in September 2022. There are other alternatives to these loans, such as credit cards, but these allow borrowers to be more flexible with their repayments, which may not be suitable for those who need a stricter plan to get out of debt.

"The average balance transfer fee has also risen, which now costs borrowers more to move their debts to a 0% balance transfer offer and stands at its highest point since November 2020. Borrowers looking to consolidate their debts would be wise to carefully compare these upfront fees and the length of any 0% offer before they commit, and perhaps consider cards that do not charge an upfront fee. Lenders typically increase the cost to borrow when the potential risk for borrowers to default is elevated.

"Consumers looking for a new credit card, perhaps for them to spread the cost of their purchases in the run-up to the festive season, would be wise to compare deals now. It's also important they take time to check their credit score before they apply. If borrowers are struggling with their debts, it is imperative they speak to their provider and seek advice if they are worried about missing any repayments."

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