Default fears push credit card interest rates higher

Credit card interest rates have hit a 13-year high as providers worry about consumers defaulting on their debt, research has shown.

The average credit card now charges interest of 18.9 per cent, the highest rate since 1998 and more than 4 per cent above the trough rates hit in 2006, according to financial information group Moneyfacts.co.uk.

The group said credit card rates had been rising since 2008, as providers priced in the risk that increasing numbers of people were likely to default on their debt in the face of high unemployment.

The group said the increase meant that someone who owed 5,000 on a credit card who repaid only the minimum amount each month would pay an additional 2,360 over the life of their debt, compared with if interest rates had remained at the 14.8 per cent they dropped to in February 2006.

It added that 18.9 per cent was only the average rate charged to new borrowers, and many existing credit card customers had seen steep hikes in the interest they had to pay.