Cost of credit card borrowing increases despite rate cuts

The cost of borrowing on a credit card has increased in recent months despite reductions in interest rates, according to new research

Research by the financial information service Moneyfacts revealed that the typical rate of borrowing on a credit card had risen from 16.8% to 17.2% since the start of August, despite a 0.5% drop in the BoE base rate back in October.

The research found evidence of lenders increasing both interest rates and service fees for purchases, cash advances and benefits such as overseas use. Other cards had cut the length of their interest-free period.

The changes are thought to be due to the banks and lenders increasing their security against defaults and missed payments.

"During the past year, card companies have continued to increase the charges on their cards and consumers will find they will be stung more severely than ever before," said Michelle Slade of Moneyfacts.

"Just like on mortgages, card companies are factoring in a much bigger margin for the risk of consumers defaulting, so rates are going up rather than down," she added.

Of the 163 cards currently on the market, Moneyfacts found that:
16 cards had increased interest rates for purchases
12 cards had increased rates for taking out cash
11 cards had increased rates for transferring debts from other cards
Seven cards had increased fees for borrowing cash
Seven cards had cut the number of interest free days
Four cards had increased fees for using cards abroad