New data released by moneyfacts.co.uk has shown that the average credit card interest rate is now 23%APR, one of the highest on record. So is it now the best time to apply for an unsecured loan?
Of course there are still some good credit card deals out there that offer special introductory deals and lower interest rates. But they don’t stay that way, they are usually only for a specific period of time, so for those on a budget making the same payment each month, they may find it a struggle. For example borrowing £1000 on a credit card charging 23% APR, at a repayment amount of £30, will mean that you will pay £509 in interest and take 4 years and 3 months to repay the debt. However the same borrowing on a credit card at 5.7% would take just 3years and 1 month to repay and would incur interest of £89.
Rachel Springall finance expert at momneyfacts.co.uk said that: “Countless borrowers could well be relying on credit cards to make ends meet as the cost of living continues to rise. While there has been a huge injection of introductory interest-free offers into the market over the last few years, which can help spread the cost of purchases, this has not stopped a surge in credit card interest away from these timed offers”.
“There is no telling what the state of the credit card market may be in a few years’ time, given increased scrutiny over the number and length of interest-free offers and what seems like an endless volume of easy credit. This means that those with debts should never assume that they can always hop from one lengthy interest-free deal to another with ease and make the most of these offers while they still can.”
With lending criteria due to change as well, it may be a concern for those who rely on credit cards solely.
“A tightening of lending on credit cards could be the equivalent of knocking down a pillar of stability from under those people barely managing due to the rising cost of living and little to no increase to their salary,” said Rachel. “Credit cards have become a staple choice for borrowers, so a sudden change in their accessibility may turn borrowers to more expensive short-term lending, such as overdrafts and payday loans.
“Consumers with debt troubles are clearly vulnerable and they would be wise to seek out financial advice before they damage their credit score beyond repair. Lenders should also be on hand to work with consumers to make sure they are not borrowing more than they can afford to repay. It’s always worthwhile for borrowers to check their credit report, get a credit repair card to build a good financial footprint or consolidate their debts using an unsecured loan if they run into difficulties.”
So the time to act is now, before the interest rate rise and whilst there are still deals and offers to be had. Unsecured loans have never been so attractive and accessible for consumers. But whilst credit cards may tempt you in the first instance, always make sure that you understand the implications of any rate changes or what happens when your special offer rate ends.