The average purchase APR on a credit card has reached a record 36%, despite lenders offering some of the longest interest-free deals in four years, according to fresh data from Moneyfacts. The analysis reveals a stark division in the market: borrowers who fail to switch could face hundreds of pounds in extra interest charges.
Interest-Free Deals at Four-Year High
The average 0% balance transfer period has extended to 605 days – the longest since September 2022 – while interest-free purchase offers now span an average of 303 days, also a four-year peak. The statistics indicate lenders are battling fiercely for new customers even as the underlying cost of borrowing continues to rise.
Rachel Springall, finance expert at Moneyfacts, said: "Competition has ignited on introductory interest-free card offers which could help defuse the glaring debt time bomb facing households. This is great news at a time when the average interest rate charged on credit cards is at a 20-year high."
Potential Savings of £700
Moneyfacts calculates that someone carrying a £2,000 balance on a card charging the average 36% APR would pay almost £700 in interest over two years if they repaid a fixed £115 per month. However, transferring that debt to a 0% balance transfer card and clearing £150 monthly could eliminate the balance in just over a year without attracting interest charges.
The cost of moving debt is also declining. The average balance transfer fee has fallen to 2.48%, its lowest point for more than a year. Multiple lenders are currently offering fee-free balance transfer deals, including Barclaycard, Virgin Money, Santander, NatWest and RBS.
Growing Debt Concerns
The alert comes as nearly half of all UK credit card debt is accruing interest charges. Figures from UK Finance show that 48% of outstanding card debt incurred interest in March this year.
Springall said many borrowers underestimate how long debt can linger when they make only the minimum repayments. She added: "Credit card holders who do not have a 0% offer and only pay the bare minimum back each month will have the debt sitting overhead for much longer than they might realise."
Broader Financial Pressures
Research referenced by Moneyfacts found that younger borrowers are especially vulnerable to financial shocks, while debt charity StepChange has recorded a 21% rise in people requesting debt guidance over the past year. The charity found that 71% of its clients carried credit card debts and 53% held personal loan debts.
The personal loan sector has remained relatively stable. The average rate on a £7,500 unsecured loan has held firm at 8.1% APR, while rates across all principal loan categories are lower than a year ago. However, borrowers seeking smaller sums face a more varied landscape. The typical rate on a £5,000 loan over three years has crept upwards from 10.2% in March to 10.5% currently.
Springall urged consumers contemplating a loan to compare options thoroughly rather than relying on advertised rates. She added: "Consumers who become exposed to unexpected shocks and fear their debts will spiral out of control must seek debt advice for support."
