Millions of credit card holders risk developing serious debt problems as interest soars to the highest rate in decades, according to a latest study.
Thousands at risk of developing serious credit card debts
Even though the Bank of England’s base rate of interest stands at a historic low of 0.5 per cent, people with credit card debts are being put at risk by average interest rates of around 18.8 per cent.
The last time interest rates on credit card debts was this high, was back in 1999 when the base rate of interest was 6 per cent.
Experts have blamed the recent rise on lenders passing on the cost of the increased number of defaults and bad debts from people struggling with their credit card debts, caused by rising unemployment.
Higher charges were also a consequence of tighter regulation from the Government.
Michelle Slade, of Moneyfacts, the group behind the research, 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.
“This increased risk continues to be passed on to both new and existing credit card customers through higher rates. Other charges such as balance transfers, cash withdrawals and foreign transfer fees also continue to go up, leaving customers paying more across the board.”
Thousands of borrowers saw that their interest rate will virtually double overnight, as holders of US lender Capital One cards received a letter stating that their interest rate would increase from 8.01 per cent to 15.31 per cent.
This rise was put down to the poor “economic environment”, and the rate charged on outstanding balances will increase from April this year.
Ivan Cooper, Chairman at debt advice specialists Chiltern, said: “Credit cards can be a useful way to pay for items, as they can be repaid over a number of months – however if they aren’t repaid in full each month or very soon then they can take many years to clear.”
UK Payment Association figures found that around fifty per cent of all credit card applications were rejected last year.
