Credit card borrowing gets more expensive as lenders withdraw deals

Consumers looking for an interest-free credit card deal will be disappointed to find that the number of 0% credit cards available is at a record low.

Figures due to be published in the Moneyfacts UK Credit Card Trends Treasury Report show that the number of introductory interest-free purchase deals has fallen to 55, down from 68 available in March 2020. At the same time, the number of introductory interest-free balance transfer deals has also fallen, down from 73 available in March 2020 to just 56 available today.

“Credit card providers act quickly when the risk to take on debts escalates and right now there is a refocus of credit card propositions to mitigate debt write-offs,” explains Rachel Springall, finance expert at Moneyfacts.co.uk. “This echoes the movements seen after the financial crash – indeed, between June 2008 and June 2009, the number of 0% purchase cards fell from 112 to 85.”

Along with a fall in the number of interest-free deals available, the average purchase rate (APR) on credit cards has risen to a record high, which is largely as a result of credit cards with reasonable rates being pulled from the market. A year ago, the average credit card purchase APR stood at 24.1%, which has risen to 25.5% today. Meanwhile, the lowest purchase APR card available a year ago offered 5.9%, whereas today the lowest APR deal on offer is 6.9% from The Co-operative Bank.

“As uncertainty builds surrounding consumer debt, this shake-up of the credit card market could not come at a worse time,” said Springall. “Consumers will have less choice when picking a 0% card for making purchases and the cost to borrow on a credit card outside of a 0% offer has risen to a record high.

“Borrowers may well use credit cards as a way to spread the cost of their purchases, but for those struggling with debt or have had their personal circumstances change in light of the Coronavirus pandemic, these debts could hang overhead for much longer then they expect.”
She added: “Those looking for a 0% balance transfer card may also need to act quickly to take advantage of the most lucrative offers as choice diminishes to a record low. The cost-saving benefits of a 0% card should not be overlooked while there are still options out there to choose from. If someone made a purchase of £3,000 on a typical credit card and made just £100 in repayments per month, the debt would linger for over three years and cost them £970 in interest*.

“In the months to come we may see the credit card market contract further, so if borrowers are in a position to do so, now may well be the time to act to get the best deal they can. To put them in the most favourable position before they apply for credit, consumers could review their credit score, such as with Experian. If consumers have any disposable income, it is a wise idea to overpay their card and consider setting aside some savings as an emergency fund for the future.”

Whether or not applicants will be accepted for a credit card deal will depend on their credit score and, as lenders become more cautious about lending, it will be harder for those with a poor credit score to borrow from traditional high street providers. As well as this, while being furloughed will not impact a credit score, lenders are unlikely to lend to those who have been furloughed.

There are some lenders who are willing to lend to those with a poor credit score and those willing to do so can be found on our bad credit loans chart . Alternatively, those looking to borrow a small amount can consider joining a credit union. Credit unions are financially regulated and predominately lend to those on benefits or who are low-income workers. More information about credit unions can be found in our What are credit unions? guide.

*Credit card repayment based on £3,000 purchase, based on an interest rate of 18.9% APR, minimum fixed repayment of £100 (thereafter a minimum of 1% plus monthly interest or £5, whichever is higher) and would take three years and four months to pay back, costing £970 in interest over this term.