The average purchase APR on a credit card has reached a record 36%, according to new figures from Moneyfacts, yet lenders are simultaneously offering some of the longest interest-free deals seen in four years. This stark divide in the market means borrowers who fail to switch could be paying hundreds of pounds more in interest than necessary.
Record APR vs. Lengthening Interest-Free Periods
The average 0% balance transfer period has stretched to 605 days – the longest since September 2022 – while interest-free purchase offers now last an average of 303 days, also a four-year high. The figures suggest lenders are competing aggressively for new customers even as the underlying cost of credit 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."
Almost Half of UK Credit Card Debt Incurs Interest
The warning comes as almost half of all UK credit card debt is attracting interest charges. Data from UK Finance shows that 48% of outstanding card debt incurred interest in March this year. Many borrowers underestimate how long debt can linger when they make only minimum repayments.
Moneyfacts estimates 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, switching that debt to a 0% balance transfer card and repaying £150 a month could clear the balance in just over a year without incurring interest charges.
Balance Transfer Fees Falling
The cost of transferring debt is also falling. The average balance transfer fee has dropped to 2.48%, its lowest level for more than a year. Several lenders are currently offering fee-free balance transfer deals, including Barclaycard, Virgin Money, Santander, NatWest and RBS.
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."
Wider Concerns Over Household Finances
The figures come amid wider concerns over household finances. Research cited by Moneyfacts found that younger borrowers are particularly vulnerable to financial shocks, while debt charity StepChange has reported a 21% increase in people seeking debt advice over the past year. The charity found that 71% of its clients had credit card debts and 53% had personal loan debts.
Meanwhile, the personal loan market has remained relatively stable. The average rate on a £7,500 unsecured loan has remained unchanged at 8.1% APR, while rates across all major loan categories are lower than a year ago. However, borrowers looking for smaller loans face a more mixed picture. The average rate on a £5,000 loan over three years has edged up from 10.2% in March to 10.5% today.
Springall said consumers considering a loan should shop around carefully 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."
