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Credit card competition stalls

Credit card competition stalls

Category: Credit cards

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Competition has been rife in the credit card market in recent years, with the number of products rising and interest-free terms getting a definite boost, giving borrowers more options – and lower interest – than ever before. But has the tide started to turn? Our latest figures suggest so, with the credit card market contracting notably as competition stalls.

Fewer cards

The figures, from the latest Moneyfacts UK Credit Card Trends report, show that the number of credit cards available has fallen on both a quarterly and annual basis, which has had an impact on the interest-free sector as well as the purchase market. Indeed, the current total of 197 available credit cards marks a reduction of 12 from March and 15 over the year, which has had a knock-on effect on the interest-free sector.

The number of cards now offering a 0% purchase deal now stands at 98 – down seven on a quarterly basis and 10 annually – while the number of 0% balance transfer cards has seen an 11-product fall since March (to 117) and a 12-product drop over the year.

Reduced balance transfer terms

But has this had an effect on the length of time you can secure a 0% deal for? Slightly, yes: although it's still possible to get a record-breaking 40 months of interest-free balance transfers, the average balance transfer term has actually fallen, albeit by a mere two days quarter-on-quarter to stand at 606 days.

This still represents a significant increase of 67 days on an annual basis, but the slowdown is apparent: the balance transfer market has been expanding rapidly in recent years with the average term consistently rising amid intense competition, but the latest results mark the first time that the average term has fallen on a quarterly basis since March 2010.

However, borrowers can take heart in the fact that activity in the 0% purchase market is bucking the trend, as although the number of cards offering such a deal has fallen, the average 0% purchase term has risen by 25 days quarterly and 30 days over the year to stand at a brand new record of 284.

This suggests a definite change of tactic: it looks as though the focus is beginning to move from balance transfers to the 0% purchase sector, offering a new battleground in which providers can compete, arguably as the balance transfer market – which has been their preferred battleground in recent years – has become saturated.

Higher rates

There's little good news to be found in the general purchase market, either, with the overall cooling apparent in terms of rate: the average purchase APR has risen by 0.2% quarter-on-quarter to stand at 22.0%, which also marks an increase of 0.8% on an annual basis.

This highlights an ongoing trend that's being driven by increases in rates, fees and the number of credit impaired (and therefore higher rate) cards available, and what it effectively means is that, on average, you'll now be paying more for standard purchases than you would have done in recent years.

That's not to say that you can't keep your borrowing costs low, however. One of the best ways to avoid interest payments is to repay your credit card balance in full every month, or if that isn't possible, consider putting your purchases on a 0% purchase credit card. Or, if you've already maxed out your credit card, see if you can get free from debt with a 0% balance transfer deal – competition may be stalling, but there are still some great deals out there, so compare the top credit cards and see what you can uncover.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.