Average cost of borrowing on loans and credit cards edges higher

Elsewhere, there are fewer credit card and personal loan providers compared to December 2023.

Between the start of December 2023 and the start of March 2024, the average annual percentage rate (APR) on unsecured loans increased across all loan tiers below £50,000, according to data from the Moneyfacts UK Unsecured Lending Trends Treasury Report.

The average rate on £5,000 loans with a three-year term is now at 11.5%, the highest it’s been in over 10 years.

Meanwhile, the average purchase APR on credit cards also inched higher to 34.7%, up from 30.7% one year ago.

More limited choice

As well as facing higher average rates, consumers also have fewer credit card providers and lenders to choose from.

“Since the start of December 2023, three credit card providers withdrew from the market; Wave, smile and Cashplus. As a result, the number of providers fell to 36, standing at its lowest point since August 2020 (36),” commented Rachel Springall, Finance Expert at Moneyfacts.

“The number of providers offering unsecured loans fell by four over the past quarter to 26, the lowest count since July 2012 (26), as AA, Bank of Ireland UK, Post Office Money and RateSetter left the market,” she added.

Furthermore, while the number of introductory interest-free purchase and balance transfer credit card deals increased slightly to 58 and 61 respectively between December and March, there are fewer options available compared to one year ago.

Longer interest-free terms

Despite the slightly higher cost of borrowing, there are some encouraging signs for credit card borrowers as the average length of interest-free terms on purchase and balance transfer credit cards increased between December and March.

The average interest-free term on purchase credit cards rose from 244 days in December to 255 days in March, which could be useful for those looking to spread the cost of a new purchase over several months.

Similarly, the average interest-free term on balance transfer credit cards increased from 508 days to 517 in the same period.

However, the average balance transfer fee rose to 2.40%, up from 2.38% in December and 2.24% one year ago.

“It is worth noting that there remain several cards with 0% balance transfer deals that do not charge a fee, so these are worth exploring by consumers who wish to avoid upfront costs when moving debts,” Springall pointed out.

“However, the 0% terms on fee-free cards are shorter in length compared to the most generous interest-free terms, so borrowers will have less time to pay back their debts,” she explained.

When managed effectively, 0% credit cards can be a useful way to pay for large purchases and reduce the cost of any existing debt.

But it’s important that you make at least the minimum payments each month and pay off your balance before the end of the 0% period, otherwise interest charges can quickly build up.

If you’re struggling to make payments and manage your debt, it’s important to speak to your lender and ask for advice as soon as possible.