The average credit card purchase APR – the total cost you are charged per year for borrowing money – has hit an all-time high, according to research by financial site Moneyfacts. As a result, millions of cardholders in the UK who have a balance run the risk of having to pay hundreds if not thousands of pounds more in interest on their cards. It doesn’t have to be like that for you, however.
It is indeed possible to avoid paying interest when you take out a new credit card and to keep more of your money in your pocket. Here’s all you need to know.
What happens to the average APR on credit cards?
Between early June and late August 2021, the average UK credit card purchase APR rose to 26.0%, according to a study by Moneyfacts. This is the highest level ever according to Moneyfacts.
A combination of loads would be responsible for this increase. These fees include rate increases on some of the lower priced cards, new card launches, and certain card withdrawals.
Is there a silver lining?
As the average credit card APR has increased, there is good news for users. 0% introductory offers, which allow customers to make interest-free purchases for a set period of time, have improved, according to Moneyfacts.
The average interest-free period is now 316 days, up from 285 days in June. This means that users can now benefit from a longer interest-free period before the standard APR comes into effect.
And in the other good news, balance transfer fees have also fallen to 2.10% on average, down from 2.28% a year ago.
And while the average interest-free balance transfer period fell to 548 days from 550 days in June, terms are up year over year from 529 days.
What does a higher APR mean for credit card users?
A higher APR means that the interest charges on your credit card expenses will be higher. It may take longer to pay off your debt because more of your payments will go towards paying interest.
Fortunately, there are ways to avoid paying interest on a credit card altogether. Let’s take a look at two of them.
1. Pay your credit card balance in full each month
You won’t have to pay any interest if you pay off your entire credit balance each month.
If you plan to write off your debt every month, be sure to look for a card with a long grace period as well. This is the period between the end of a billing cycle and your payment due date.
Of course, it is not always possible to pay off your balance in full, especially in the aftermath of the pandemic.
If you end up with a credit card balance, the best thing you can do is make more than the minimum payment. The larger the repayment, the more you will reduce your balance and the less interest you owe.
2. Stick to 0% APR credit cards.
As Moneyfacts shows, interest-free purchasing terms for credit cards have improved over the past quarter. Users now enjoy an average of 316 days of interest-free purchases.
If you have to use a credit card but can’t pay off your balance in full each month, stick with credit cards that give you a long time with no interest on purchases. We’ve compared some of the latest 0% credit card offers from the UK’s leading lenders to help you find the right one for your needs.
Keep in mind that to avoid paying interest, you must clear your balance before the interest-free period ends.
Also, it’s important to know that the interest-free period applies to purchases but not to cash advances. If you use your credit card to get a cash advance, you will start paying interest from the date of the transaction. Interest and fees on cash advances can be high. So if your goal is to save money, avoid cash advances at all costs.
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