Customers paying 18.4pc more than the current Bank Rate
Although banks have to pay a base rate of only 0.5pc, as has been fixed by the Bank of England for almost two years, the average rate for new credit card customers is 18.9pc.
The average credit card annual percentage rate (APR) is over 35 times higher than the Bank of England’s rate – the highest ever in 13 years.
It is possible that this is because of high level of unemployment and the general state of the economy. Michelle Slade, from Moneyfacts.co.uk, comments that “providers are worried about the increased risk of customers not repaying debts”, and the higher interest rates for new and current customers reflects this risk.
Slade continues; “During the financial crisis many card companies assessed their existing customer base and many customers have seen large increases in the rates they are charged.
“Customers who would previously have switched to another provider are now finding it’s not so easy to do so.
“Competitive deals for balance transfers and introductory purchases remain on offer, but card providers are selective over exactly who they accept for these deals.
Moneyfacts said most card companies will have a dent in their revenue stream, as from the beginning of 2011, they have moved to a positive order of repayments. This also means that customers will keep seeing rates rising.
Credit card providers that advertise low rates can be much more selective about their applicants, according to new rules that have been introduced recently.
Before, credit card and loan companies advertised a “typical rate”, but the actual rate depended on the customer’s financial history. This rate could also be up to twice the advertised amount.
Providers had to give at least two-thirds of successful applicants the advertised rate, but since February 1, under the Europe-wide Consumer Credit Directive (CCD), they will only have to give 51pc of customers the rate advertised.
Borrowers with £5,000 debt on their card, who repay the minimum each month, will now repay an additional £2,360 over the life of the debt compared to February 2006.