A recent report indicates credit card interest free offers have improved and unsecured personal loan rates have fallen year on year.
Moneyfacts UK Unsecured Lending Trends Treasury Report data, which studies the UK personal finance market (Credit Cards, Personal Loans and Overdrafts) reveals 0% credit card offers have improved. Unsecured personal loan rates have also fallen each year.
- Interest-free purchase cards improved over the past quarter, now offering 285 days at 0% on average, up from 284 days in March.
- Terms have improved year-on-year from 282 days but have yet to return to levels seen in June 2019 at 331 days.
- The average interest-free balance transfer term on credit cards rose to 550 days, up from 530 days in March moving away from the recent low in December 2020 (520 days).
- Terms are down year-on-year from 555 days. Balance transfer fees have fallen to 2.12% on average down from 2.55% seen a year ago.
- Average unsecured personal loan rates for £3,000 over three years, £5,000 over five years, and both £7,500 and £10,000 over five years, are down compared to June 2020.
- Over the past quarter all rates within this selection have dropped, with the exception of the £5,000 over three-year tier which rose slightly from 7.0% to 7.1%.
Credit card interest free market analysis
Increase spending predicted as lock down eases
Rachel Springall, Finance Expert at Moneyfacts, said:
“As the UK lockdown eases it would not be too unsurprising to see consumers increase their spending, whether this be their disposable income saved up over the past few months or by using a credit card to spread the cost. Thankfully for those borrowers looking to use a 0% introductory purchase credit card, there have been a few improvements recently including increases to interest-free offers byLloyds Bank, Barclaycard and M&S Bank.
“Interest-free credit card terms have improved over the past quarter, great timing for consumers looking for a new card offer to make interest-free purchases. Spending is on the rise, with research from Barclaycard noting the highest consumer spending growth recorded since coronavirus restrictions began, rising 7.6% in May compared to the same period in 2019. The influence of the Coronavirus pandemic may have left consumers unsettled but for consumers ready to get back to normality and want a competitive credit card for spending, it is positive to see improved 0% offers surface.
“Compared to two years ago, there is more room for improvement to 0% offers in both choice and terms, but some providers may be reluctant to compete too much in the length of interest-free deals when it comes to debt transfers, particularly to deter persistent debt. On balance transfers, lenders appear to be giving more attention to the upfront cost of moving debts this year, with the average balance transfer fee reducing from 2.55% to 2.12% year-on-year. It could therefore be cheaper for consumers to make a transfer than before and borrowers would pay back their debt sooner to avoid incurring interest with shorter 0% offers.
“Consumers looking to consolidate debts or perhaps make home improvements via a personal loan will be pleased to see rates have dropped across a few lending tiers this quarter. Those borrowing £5,000 will note a slight rise, however the average rate is still down year-on-year. There has also been a couple of lenders leaving the market entirely, namely John Lewis and Starling Bank. If borrowers are considering a small loan, such as £3,000 they may be better off considering an interest-free credit card instead.
“Whatever type of borrowing method consumers choose it is always a wise move to review their credit report before they apply and be mindful that they may not get the offer or rate advertised, as the representative APR is only given to at least 51% of successful applicants. Any consumer struggling with debts should seek out advice and contact their lender at the first instance. If they can do so, a sensible plan would be to start a savings pot for any future goals so not to fall into the habit of borrowing too often to cover unexpected expenditures.”