CREDIT card rates have reached a twelve-year high as providers become wary of borrowers inability to repay debts during the recession.
The average credit card rate now stands at 18.8 per cent, a four per cent rise from 2006 when increased competition between providers drove rates down.
Banks and credit companies face higher pricing for risk due to rising default rates, despite the Bank of England base rate being at an all time low of 0.5 per cent since March last year.
“Banks don’t want to lend on personal loans as, unlike on a mortgage, there is no security that a loan debt will be repaid,” Michelle Slade, spokeswoman for Moneyfacts, which provided the data, said. “They are pricing that risk into their rates and they are trying to deter people from taking them out. In such a risk-averse market, lenders are only offering loans to the most creditworthy applicants and then at a premium.”
Defaults in the UK have increased as unemployment rises. Providers have passed this risk on to both new and existing credit card customers through higher rates.
And rates are likely to increase further if regulators force banks to hold more capital and liquid assets such as government bonds.
“The cost of credit is going in one direction only – it’s going higher,”" John Varley, Barclays chief executive warned the Commons Treasury select committee inquiry into financial institutions this week.
FAST FACTS | CREDIT CARDS
Total borrowing in the UK grew by £1.2bn in December – twice the average for the past six months.
Rates for existing borrowers have increased, even if they have never missed a payment.