Warning as typical credit card borrowing rate reaches 20-year high

Average APR for credit card purchases hit 35.8 per cent in February

Credit card interest rates have soared to their highest point in at least two decades, new data reveals.

The average annual percentage rate (APR) for credit card purchases hit 35.8 per cent in February, marking the highest figure recorded since financial information website Moneyfactscompare.co.uk began tracking these statistics in June 2006.

This significant increase means that many consumers could face higher costs on their outstanding balances.

For those carrying credit card debt, experts suggest either prioritising faster repayment or exploring options to transfer balances to cards offering an introductory 0% interest period.

Shifting debts around is good for those who want to grab interest-free offers, Moneyfactscompare.co.uk said (PA Archive)

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “The latest statistics from UK Finance reveal around half of credit card holders are now incurring interest charges, and while some might only owe a few hundred pounds, there will be others with significantly more debt that needs to be paid back.

“Luckily, there are some lengthy interest-free balance transfer cards to choose from, with TSB leading the market with a 38-month term, which charges a transfer fee of 3.49 per cent per cent.

“Reviewing card statements regularly is vital to stay on top of debts, but it’s also wise to make a calendar note of when any balances will incur interest.

“Shifting debts around is handy to grab interest-free offers, but the debt will hang overhead if only the minimum repayments are made each month.”

Ms Springall also suggested checking credit reports before applying for a new card.

She added: “Consumer behaviour continues to change, many now use their digital wallet to make payments, such as with a smart phone or watch.

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“It is then essential for consumers to keep on top of their transactions, such as setting up notifications each time they spend from their bank, or checking their online statements each week.”

Meanwhile, Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, described growing outstanding balances and higher rates as a "toxic mix" that could "derail" mortgage applications.

She said: "Credit card debt is creeping up at exactly the wrong time. Balances rising 8.5 per cent year on year tells us that households are leaning on credit to plug gaps.

"Yes, the share of balances incurring interest has dipped slightly to 47.8%, but that still means nearly half of all card debt is being charged at an average 35.8% APR. That is eye-watering and very hard to outrun.

"For mortgage hopefuls, this matters. Lenders look at outstanding balances, minimum payments and overall utilisation. High card debt can shrink how much you can borrow or derail an application entirely.

"Even if you pay on time, heavy usage signals financial strain. Rising balances plus record APRs is a toxic mix."