- Credit card providers are tightening terms for leading card options
- Interest rates are also rising, as are transaction costs, according to Moneyfacts
Banks continue to shorten the interest-free period on zero percent credit cards – meaning borrowers have to pay more to avoid high interest rates, according to financial data firm Moneyfacts.
These interest rates are also rising: the average annual interest rate on credit card purchases is now 34.5 percent, the highest level since Moneyfacts started keeping data in June 2006.
Not only this, but balance transfer fees on top zero percent cards are also rising, meaning customers will have to pay more to consolidate their debts.
Barclaycard, Virgin Money, MBNA and Halifax have reduced their zero per cent introductory purchase or balance transfer offers since early October 2023.
Piling up: Credit card providers are tightening the conditions for zero percent cards for consumers
There are two types of zero percent credit cards: purchase and balance transfer.
Credit cards allow customers to purchase items, while balance transfer cards are usually used for debt consolidation.
Moneyfacts also found that the length of the main interest-free terms has shortened over the past twelve months.
The longest zero percent period on a credit card for purchase is 21 months, as of the Barclaycard Platinum All-Rounder Visa.
But a year ago the best equivalent card, the Sainsbury’s Bank Dual 24 Month Offer Credit Card Mastercard, had zero per cent interest for 24 months.
Zero percent interest credit cards allow consumers to borrow without additional costs for a certain period of time, after which a higher interest rate applies.
A balance transfer fee is charged on the money you move to a zero percent card.
The longest introductory 0 percent term for balance transfer cards is now 29 months, from Barclaycard, which has a 3.45 percent balance transfer fee.
But a year ago, the best deal was significantly more generous. In November 2022, the top term was 34 months at zero percent interest, from Sainsbury’s Bank, with a lower balance transfer fee of 2.88 percent.
In other words, customers who wanted a balance transfer credit card a year ago paid less to put debt on it and then had more time to pay it off.
Rachel Springall of Moneyfacts said: ‘Credit card providers can withdraw zero percent offers if they believe there is a risk in offering such long terms in a changing market.
‘We have seen in previous years that there were clear warnings about debt, and that providers could and have reduced interest-free offers.
‘While we’re not seeing a massive exit from long-term withdrawals at the moment, the reductions we’ve seen come at a typically seasonal time for consumers to be looking for new deals – Black Friday, the run-up to Christmas – and a tightening of 0 percent offers is not a good sign for customers shopping around.”
What credit card changes mean for consumers
Buy interest-free terms on credit cards
Cuts to interest-free periods mean that someone who takes out the best credit card at the moment, borrows £5,000 and wants to pay it back within the 21-month period, will have to pay back £238.09 per month.
A year ago the same person would have paid £208.33 over 24 months, or £29.75 less per month.
Credit card interest rates are rising
If someone borrowed £1,000 on a credit card that charges 34.5 per cent, but made £100 in fixed repayments, it would cost them around £165 in interest and take a year to pay back.
If they stuck to paying back £50 a month, it would take twice as long to pay back and cost around £400 in interest, according to Moneyfacts.
Credit card balance transfer costs are increasing
Increases to balance transfer fees mean that someone putting £5,000 of debt on a zero per cent interest card would pay £172.50 to Barclaycard, which has the longest period without interest.
But that fee would have been £144 on the equivalent credit card a year ago, or £28.50 less.