13-Year High for Credit Card Interest Rates

Consumer misery shows no sign of letting up in 2011, with credit card interest rates hitting a 13-year high, according to research carried out by price comparison site moneyfacts.co.uk. The average credit card charge now stands at 18.9%, over 4% higher than the low rates seen in 2006.

The previous record was back in February 1998, when interest rates were at 7.25% and card lending rates peaked at 21.1%. From that point, increased competition among credit providers at the end of the 1990s saw the rates start to fall, reaching their lowest point of 14.8% in February 2006.

Moneyfacts blames the economic downturn for the high cost of credit; with unstable economic conditions and rising unemployment causing lenders to factor in an increased risk of default when setting their rates.

Another consequence of the financial downturn is that it is becoming increasingly difficult for the hard-pressed consumer to switch to alternative credit providers in search of a better deal. There are some competitive offers for balance transfers and introductory purchases, but as lenders become more selective over who is eligible for these deals, not everyone can get the good rates.

Considering that 18.9% is the AVERAGE interest rate, some customers are being hit with even higher charges. For example, on a credit card debt of £5000.00, a customer repaying only the minimum monthly amount will now repay an additional £2360.00 over the life of the loan.

Cardholders who want to avoid the higher interest rates are advised to switch to one of the 0% balance transfer cards currently available. After paying an initial fee, they can transfer their existing balance to the new card and escape paying any interest for a while. Price comparison websites like moneyfacts and moneysaveingexpert can help you find the best deals.

European borrowers can at least take some comfort from new consumer protection legislation drawn up by the EU Consumer Credit Directive (CCD), which came into effect on February 1 2011. The new rules will strengthen existing consumer rights, including introducing the right to make partial early repayments. Potentially the biggest consumer benefit is the new 'right of withdrawal', or the right to pull out an agreement within 14 days. Previously telephone and internet buyers previously had greater legal protection, as these transactions were covered by the 7 day 'cooling-off period' provided by distance selling rules. The new EU Directives gives similar protection to consumers when the enter into a credit agreement in person, and extends the old 'cooling-off' period for an additional week.


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Charlotte Mooney is an IT professional with many years experience, now working for IT Software Consultancy Proswift, a leading provider of international credit system solutions to banks and finance houses. Click here for more topical stories from the world of credit card processing. ProSwift News&Downloads