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How to fight back against rising credit card rates

Which? research reveals rising cost of borrowing

Gold credit card in between two white credit cards

The cost of borrowing on a credit card has grown significantly in the past six years, according to Which? research.

Our researchers’ analysis of the credit card market reveals that the average purchase APR charged by credit cards has increased by 19% since July 2009, while the average cash withdrawal APR has also grown.   

Here, we explain the best way to take advantage of credit card deals without getting stung by huge fees. 

Which? Money Compare Table: Credit cards – hundreds of credit cards compared

Credit card APRs on the increase 

The average credit card purchase APR has risen from 16.6% in July 2009 to 19.78% today. 

Several cashback and reward credit cards have introduced an increased purchase APR in recent months. 

American Express increased the APR on its two cashback cards (Platinum Cashback Amex card and Platinum Cashback Everyday Amex card), while both of its British Airways Amex cards have also seen an APR rise. 

Reward cards on offer from Debenhams and House of Fraser are among others to have also seen a purchase APR increase. 

Many cashback and reward cards have a higher than average APR, meaning that any rewards earned are likely to be lost in interest if you borrow on them. 

Credit cards with high APRs shouldn’t immediately be written off though, as long as you’re in a position to avoid interest by paying off the bill in full each month. If you’re not in a position to do this, you might be better off applying for a credit card with a lower APR. 

Which? Money Compare table: Credit cards for everyday spending – our tables are updated daily 

Cash withdrawals becoming more costly 

The cash withdrawal APR has seen an increase from 25.53% just over six years ago to 25.89% today, while the maximum fee for withdrawing cash has increased from £3 to £5.  

Withdrawing cash on your credit card can have a detrimental effect on your credit rating and you’ll often not get any interest-free days on these withdrawals, so try to avoid making any unless it’s absolutely necessary.  

Interest-free deals

The credit card market is becoming more competitive, particularly in the interest-free market.  

Balance transfer credit cards

If you’re keen to cut the interest you pay on existing credit card debt, a 0% balance transfer deal could be for you.

The length of 0% balance transfer deals has increased dramatically in recent times and balance transfer fees are actually slightly lower than six years ago too. The average fee in today’s market is 2.43%, compared with 2.73% in 2009.    

Yesterday, Virgin Money launched a credit card offering a gigantic 40 month 0% balance transfer deal for customers that apply by September 9. This deal represents a staggering 150% increase in the length of this type of interest-free deal since July 2009, when the longest deal was only 16 months.  

This credit card comes with a 2.99% balance transfer fee though. When comparing deals, make sure you search for a lengthy deal with a low balance transfer fee.

Which? Money Compare table: 0% balance transfer credit cards – find a great deal 

0%-on-purchases deals

The longest 0%-on-purchase deal was just 12 months in 2009, whereas currently the Post Office is offering up to 25 months of purchases interest-free.

If you take out a interest-free deal, consider setting up a direct debit to repay at least the minimum monthly amount so you avoid accidentally missing repayments, which could result in your provider withdrawing the interest-free deal.

Ideally, you’ll be able to pay off enough each month to clear your balance before the 0% deal runs out.  

Which? Money Compare table: 0%-on-purchases credit cards – find a great deal 

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Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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