Warnings issued over credit card holidays

An individual with an average credit card debt could incur more than £250 of interest over a six month repayment holiday, increasing their outstanding balance by around 10%, latest research has shown.

Figures calculated by Quilter assume average credit card debt from the ONS, Bank of England average credit card interest rate, and a 182 day (6 month) holiday. Credit card holidays have been taken out by 961,700 borrowers according to the latest data from UK lenders and average credit card debt in the UK is £2,655.

At the average interest rate of 18.54%, an individual would see their card debt increase to £2,909 over a six month period, adding about 10% to their balance, Quilter said.

Quilter mortgage expert Charlotte Nixon said: “The government and the banking sector should be congratulated for implementing an extensive package of holidays for borrowers at short notice, covering loans, credit cards and mortgages.

“However, consumers should be wary about treating them as a no-cost excuse not to clear their balance. In most cases, borrowers will still be accruing interest on their outstanding debts. In the immediate term, this will mean people are worse off since they’ll need to pay more to clear their balance when the holiday ends.

“Over the long-term, although holidays are not supposed to impact credit scores, it is inevitable that extra credit card debt could affect some people’s eligibility for lending going forward. Lenders use a wide range of factors to assess whether to extend a mortgage to someone, and if you have significant outstanding credit card balances that may count against you.”

Credit card borrowers are currently eligible for a three month repayment holiday to help those struggling due to a loss of income linked to COVID-19. There is a currently an ongoing consultation to extend the measures for up to six months.

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