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Loan Protection: Credit card borrowing rises despite low base rate

The cost of borrowing on a credit card has increased despite the historically low interest rate, according to new research.

The Bank of England's latest Trends in Lending report has revealed that the average interest rate on a credit card is now 12.38 per cent, compared to 12.08 per cent in June 2008.

Credit card providers were therefore charging seven per cent more than the interest rate two years ago, but are now charging nearly 12 per cent more than the current 0.5 base rate.

Lenders also receive a significant profit with personal loans as the current margin between the base rate and loan rates is six per cent compared to 4.4 per cent in June 2008.

Louisa Parker, head of research and policy at the Money Advice Trust, said: "The cost of borrowing on a credit card has remained entirely decoupled from the Bank of England base rate, meaning the margins that credit card companies are making have increased significantly over the last couple of years.

"This also means many consumers will have seen little or no benefit from the low base rate."

Ms Parker advised lenders to consider the base rate when pricing their products.

Posted by Charles Baker

Charles is a reputed financial analyst with almost decades of experience under his belt. ADNFCR-2776-ID-800032978-ADNFCR



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