Urgent warning for millions of credit card customers urged to check accounts now after ‘insulting’ hikes
MILLIONS of credit card customers are being urged to check their accounts as lenders continue to hike interest charges.
Some providers have raised the interest charged on their cards by 11 percentage points in the last decade, The Sun can reveal.
It comes as Barclays and Santander have notified loyal customers that the annual percentage rate (APR) on thousands of cards will be increased.
In March, Santander announced that the rate charged on thousands of cards would rise by five percentage points and be capped at 23.9% for customers currently below that amount.
Any customer currently charged over 23.9% will not have their rate increased.
Barclays has also confirmed that it’s upping its credit card APRs by up to 9.9 percentage points.
The maximum any customer will see their APR raised to is 23.9% (on Prime) or 28.9% (on Rewards, including Avios).
WHAT IS APR?
APR – or Annual Percentage Rate - refers to the total cost of your borrowing for a year.
APR is based on the card purchase interest rate plus standard fees.
This rate doesn’t include other fees and charges, such as cash transactions or transfer fees.
APR can help you compare lending products, such as loans or credit cards, on a like-for-like basis.
If you search for a loan, say on a price-comparison site, the different loan options are often ranked by representative APR.
When a loan is advertised with a “representative APR”, it means that at least 51% of customers must receive a rate that is the same as, or lower than, the representative APR.
It can be easy to assume that the lender with the lowest representative APR you find advertised will give you the best rate.
However, when you apply, it’s likely you’ll receive a personal APR based on your circumstances.
This could be the same, higher, or lower than the representative APR.
New research by TotallyMoney and Moneycomms for The Sun illustrates how banks have increased their representative APRs in the last decade.
Just 10 years ago, in April 2024, the typical credit card representative APR sat at 17.9%.
Fast-forward to April 2024, and the average rate is 24.8%, representing a 6.9 percentage point increase.
However, some lenders have hiked rates substantially more in the period.
For example, John Lewis has increased the representative APR on its credit cards from 16.9% to 27.9%, representing a huge 11 percentage point increase.
Sainsbury’s Bank also has hiked its credit card representative APR rate by 10 percentage points in the last decade.
At the other end of the spectrum, Metro Bank has kept its representative APR rate below 19% after hiking rates by just five percentage points in the last decade.
Alastair Douglas, chief executive of TotallyMoney said: “Seeing your interest rate jump when the Bank of England‘s rate hasn’t moved for almost a year can seem insulting.
“However, long before the recent base rate hikes, banks have been slowly turning up the dial on how much they charge customers for their borrowing.
“Even since last summer, when the base rate was last increased, credit card APRs have risen by another 0.77 percentage points.
“At the same time, offers have been watered down, with the average interest-free periods on both balance transfer and purchase cards shortened, while fees have been hiked and products pulled from the market.”
HOW TO SHIFT CREDIT CARD DEBT QUICKER
By Consumer Reporter, James Flanders:
UK Finance reports that we spend a whopping £2 billion a month using our credit cards.
While that little strip of plastic makes everyday spending easy peasy, it comes at a huge cost.
According to The Money Charity, the average credit card debt sits at £2,485 per household or £1,312 per adult.
And if you’re stuck on a credit card with a high APR and only making the minimum repayments, you could be forking out hundreds of pounds extra in interest charges.
For example, if you owe £1,312 on your credit card and are charged 24.8% APR.
If you don’t make any more transactions and pay £100 a month in repayments, you will pay off the card by September 2025 but at a cost of £207 in interest.
However, by hunting around for a better deal elsewhere and switching to a balance transfer credit card with a lengthy interest-free period, you can save yourself £162.
If the same person was accepted for a 28-month-long zero-interest credit card with a 3.4% balance transfer fee and made the same £100 repayments each month.
They would pay off the debt sooner, in July 2025, and only fork out £45 towards the 3.4% balance transfer fee.
Before taking out a new credit card or increasing the amount you borrow, it’s vital to consider the consequences.
You should only borrow money if you can afford to pay it back.
It’s always vital to ask yourself if you actually need to borrow before committing to a new credit card, personal loan or overdraft.
If you use a credit card, I’d recommend that you always pay off your balance in full at the end of each statement period.
Lenders have a responsibility to help customers who are in debt.
If you’re in a debt crisis, your first point of call should be your lender.
They might help you out by offering you a reduced interest rate or a temporary payment holiday – so check in with your lender if you’re struggling.
The hikes serve as a good reminder to anyone with a credit card to check their rate and see if they can shift to a cheaper deal.
WHAT CAN I DO ABOUT IT?
It depends what you use your credit card for. If you’re using it for purchases or to earn rewards, then make sure you pay off the balance at the end of each statement period to avoid paying interest.
If you’re unable to pay off your balance in full or are using the card to pay off debts, you need to be on a low or 0% balance transfer credit card.
These allow you to move the balance from one credit card onto a new one, and you pay no interest for a set period.
This means your debt is easier to pay off because money saved on interest can be used to put toward owed finances.
It’s important to note that you can’t transfer a balance between cards from the same bank.
The best cards currently available include one from Barclaycard which is offering a 28-month long 0% deal with a 3.45% fee.
Lloyds Bank is also offering up to 27 months at 0% with a fee of between 3.2% or 3.4%.
CREDIT CARD NEED-TO-KNOWS
NOT using a credit card effectively can wreak havoc on your finances and your credit score.
If you don’t keep up with repayments or default on your debt, you are likely to get a black mark on your credit record, which could affect your ability to get a credit card, loan or mortgage in the future.
It’s important not to let yourself get sucked into overspending.
You should always clear the full balance as soon as possible.
If you have a poor credit score, don’t bank on being approved for a card or getting the 0% deal you’d hoped for.
Card providers only have to give the advertised rate to 51% of applicants, so you could end up paying more interest than you bargained for.
If you’ve got a poor credit record, you’re less likely to get the best rates.
And if you are looking for a new credit card, don’t apply for lots at once.
After your 0% period is up, lenders can charge upwards of 40% interest, so if you have not repaid the debt fully by then, try to move the debt onto another 0% deal.
HOW TO APPLY AND GET ACCEPTED
When you apply for credit, the lender will use the information from your application form and the information it gets about you from a credit check to decide whether to lend to you.
Making an application will leave a mark on your credit report, which could impact future credit.
However, using an eligibility calculator allows you to check your chances of getting a card without affecting your score.
For example, MoneySavingExpert’s eligibility checker uses a “soft” search, which lenders can’t see, to calculate your percentage chance of getting top cards and loans.
Most major lenders and comparison sites, including Compare The Market, offer free eligibility calculators on their websites.
How to get free debt help
THERE are several groups which can help you with your problem debts for free.
- Citizens Advice – 0800 144 8848 (England) 0800 702 2020 (Wales)
- StepChange – 0800138 1111
- National Debtline – 0808 808 4000
- Debt Advice Foundation – 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations – don’t be tempted to use a claims management firm.
They say they can write-off lots of your debt in return for a large upfront fee.
But there are other options where you don’t need to pay.