BORROWERS are facing a boost in costs, with credit card rates reaching an archive high.
The very high cost borrowing will push up household bills even more this Christmas as Brits battle a previously bleak cost of living crisis.
Financial specialists at MoneyFacts have released new data around the price of charge cards and unsecured personal loans in their Unsecured Lending Trends Treasury Report.
And the average rate across all types of charge cards including fees has hit a new a lot of 30.3%.
The figures come more than a month following the Bank of England hiked the bottom rate to 3% – the biggest interest rate increase in 33 years.
The central bank increased rates of interest to help control rampant inflation that is currently sitting at 11.1% – a 41-year high.
And borrowing costs are expected to rise once more on Thursday with the Bank of England likely to increase rates by 50 basis points to 3.5%.
In turn, this reduces people's disposable income and could result in households borrowing cash at high rates to cover Christmas.
Rachel Springall, finance expert at Moneyfacts, said: "The cost to gain access to on charge cards has reached an archive high, with both average purchase APR and the average purchase per annum rate increasing throughout the final quarter of 2023.
The average annual interest rate for charge cards has risen by 4.1 percentage points from 26.2% in December 2023.
It comes after American Express entered the arena with a brand new card charging 439.9% APR.
Ms Springall said: "Borrowers might be concerned to determine the typical purchase APR surpass 30%, but it is important to note there remains a plentiful quantity of 0% introductory credit cards available on the market.
"However, over the past few months, the interest-free terms on offer both for purchases and balance transfers have waned, so borrowers now have a shorter period to pay off the money they owe before interest is charged."
Borrowers should carefully compare the size of any 0% offer before investing in getting a brand new credit card.
The price of personal loans has also increased dramatically this year, according to MoneyFacts.
Individuals hoping to borrow lb3,000 within the next three years face an average rate of 14.3%, when compared with 15.9% this time around last year.
Those wanting to borrow lb5,000 over three years are facing a typical rate of 9.5% compared to 6.9% last year.
The average rate on a lb7,500 loan tier now stands at 7.4%, compared to 4.4% in October 2023.
And the typical annual rate of interest around the lb10,000 loan tier sits at 7.3%, versus 4.4% last year.
While borrowing sounds like an easy way to get the presents within this Christmas – it's not worth falling into debt over.
It's vital to consider if you really want to borrow before investing in a brand new credit card or personal bank loan.
If you cannot afford to repay a debt you have now, then you should avoid taking out any more debt no matter what.
We've previously warned that Brits will discover it harder to borrow as rates rise.
And many could be instructed to take a loan from the unregulated buy now pay later sector or through riskier and more costly payday loan firms – but we've warned against this.
How can I reduce borrowing costs?
The first thing borrowers can perform is attempt to enhance their credit ratings.
Boost your credit score
Getting on the electoral register is a must with regards to creating a decent credit score.
This proves what you are and where you reside meaning it's easier to get credit if you're on the list.
It is also wise to check the electoral roll for any errors. You can sign up by registering to vote.
Don't make too many credit applications as it can be seen as a sign of bankruptcy – and each application will be documented on your file.
Use a "soft-search" eligibility calculator to exhibit how likely you're to be accepted.
Always pay your bills as late payments are also recorded inside your file.
Try and reduce your existing debt before you apply for new credit as lenders may be unwilling to give loan to you should you curently have a lot of debt.
The best charge card deals – using the lowest rates, biggest limits, cheapest fees and longest interest-free windows – are restricted to individuals with top-notch credit ratings.
Lighten your loans
If you got a loan a few years ago, it might be worth searching for a better deal.
Using a new loan at a lower rate to repay a classic it's possible to sometimes seem sensible.
But remember, not everyone has got the rates advertised by lenders, because these are restricted to those with good credit ratings.
Check which loans you're probably to obtain without damaging your score by using an eligibility tool like the one on Compare The marketplace or MoneySavingExpert.com.
Blitz your charge card balance
Do not let credit debt linger. If you are just paying the minimum each month, it could take decades to pay off.
Only making the average 2.5% minimum monthly payment on a lb5,000 balance means it would take you nearly 38 years to repay and price nearly lb15,000 in total, on a typical rate of interest of 22%.
Switch to some balance transfer charge card to obtain a window of up to 34 months with no interest charged.
Break the total debt into monthly payments and set up a direct debit to ensure you wipe the total amount in that time. If that's impossible, attempt to switch again to a new card.
But not everyone can get the very best balance transfer deals, because they require a great credit rating.
Find out which cards you're most likely to obtain using the eligibility checkers on Go Compare or Uswitch.
Obliterate overdraft charges
Dipping to your overdraft may be one of the more costly ways to borrow, with some banks charging 40% interest – almost double the amount average credit card rate.
Move to a bank with a free overdraft. To repay larger overdraft debts, a money transfer charge card could give you an interest-free respite, but watch out for high fees.
How can one get debt help?
If you're indebted there are plenty of services you can make the most of plus they offer free advice on how to manage debt.
Most of these can provide you free guidance and help in person, over the telephone or online.
- Money Helper – 0800 138 7777
- Citizens Advice – 0808 800 9060
- StepChange – 0800 138 1111
- National Debtline – 0808 808 4000