Credit card APRs at 18-month high

Christmas can be one of the most expensive times of the year and a lot of people will be borrowing money to help them pay for it.

Loans have often worked out cheaper than credit cards in terms of interest, but new research reveals that the difference between these kinds of credit is growing - it seems loans are getting cheaper and credit cards are becoming more expensive.

We recently reported on the lowest APR on a loan, from M&S. The deal is 5.5% interest on loans between £7,500 and £15,000, repaid between one and five years - although you'll need a very good credit record to get it.

However, loans aren't always cheaper than credit cards. For example, there are all kinds of interest-free purchase and balance transfer credit card deals around today: if the balance is repaid by the end of the introductory period, the customer doesn't have to pay any interest at all.

Even so, the average purchase rate on credit cards is at an 18-month high at the moment. The average APR on a purchase is 19.1% today, as it was 18 months ago. A year ago, it stood at just 18.1%.

Rachel Springall, finance expert at Moneyfacts.co.uk, explains how much more a £5,000 credit card balance will cost you (compared with a year ago):

"Borrowers with a £5,000 debt on their card, who repay the minimum (£5) each month, will now repay an additional £692 over the life of the debt compared to a year ago."

Balance transfer deals can certainly save people money - if the balance is repaid or transferred again before the end of the introductory offer. However, customers should also consider the impact of the transfer fee when taking up an offer like this, as Ms Springall goes on to explain:

"Based on a debt of £5,000 with a 3% fee, it would cost £150 to move the debt and that's before interest is applied."

A spokesperson for All About Money commented: "Anyone looking to borrow money this Christmas needs to weigh up how much it could cost to repay, and how long it would take them: it's important to borrow no more than you can comfortably repay. Our loan calculator could help you plan ahead, showing you how much your monthly loan repayments could be."

Image © iStockPhotos / Adrian Assalve

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