Bank of England reports new record high interest rates on credit cards
- Credit card usage remained high in July, according to figures from the Bank of England
- The effective interest rate on interest-bearing credit cards rose to a new high of 20.76%
- Has your limit suddenly been lowered? editor@thisismoney.co.uk
The effective interest rate on credit cards rose 34 basis points to a new high of 20.76% in July, according to new data from the Bank of England.
Some experts have warned that, with credit utilization remaining high, more banks and building societies could lower people’s credit, card and overdraft limits out of the blue and without warning.
Net lending of consumer credit by individuals fell from £1.6bn in June to £1.2bn in July. This was driven by a decline in borrowing through forms of consumer credit, such as car dealership financing and personal loans.
But credit card borrowing remained broadly unchanged at £600 million for the third month in a row.
New high: Effective credit card rates rose 34 basis points to a new high of 20.76% in July, Bank of England figures show
Riz Malik, director of independent mortgage brokerage firm R3 Mortgages, said: ‘Rising effective interest rates are clearly troubling for individuals with fluctuating rates on their credit cards.
“Another emerging threat, however, is the sudden and unexpected reduction in credit card limits.”
He explained: ‘Recently I saw a credit card company inform a customer that their credit limit was reduced from £14,000 to £1,000 because it was not being used.
The same pattern can be seen with overdrafts. This mirrors what happened in the early days of the credit crunch and could expose many.’
Neezam Romjon, co-founder of Rebus Financial Services, said: “With more and more people relying on short-term credit to cover the rise in the cost of living, this is worrying.
The good news is that 0 percent balance transfer offers still exist for those who qualify. Failure to keep track of this will prove to be a costly mistake.’
Lending: Net lending of consumer credit by individuals fell from £1.6bn in June to £1.2bn in July
Meanwhile, Mike Staton, director at Stanton Mortgages, said: ‘With costs ever rising, people are resorting to lines of credit to maintain a lifestyle that was not possible 20 years ago, and this has a huge impact on a home buyer’s lending capacity. .
“If you want to buy a house, avoid credit cards.”
According to the Bank of England, the annual growth rate for all consumer credit fell slightly to 7.3 percent in July, compared to 7.5 percent in June.
Similarly, the annual growth rate for credit card loans and other forms of consumer credit fell to 11.7 percent and 5.5 percent, respectively, from 11.9 percent and 5.6 percent in June.
The effective interest rate, which reflects the true cost of borrowing, on new personal loans rose to 8.61 percent in July from 8.41 percent in June.