Chapter 03 · Financial harm
Credit cards can be a brilliant spending tool. Two in three UK adults hold one and most repay in full each month.1
There are a number of benefits when making purchases with a credit card: Section 75 purchase protection, interest-free periods and flexibility when it is needed. Loqbox’s position is that credit cards have an important place in most people’s financial lives.
However, we are concerned that the product most often promoted to people with little or no experience of credit, and to people returning after financial difficulty, is a high cost credit card. The way minimum payments are designed means a product sold as a stepping stone can become a long term cost. We think people should use a credit card when they want purchase protection or an interest-free period. But we don’t think they should have to use one, at some of the highest rates in the market, to prove they can be trusted with credit.
The cards marketed to thin file and impaired file consumers carry representative APRs well above the market average, and just short of double the rate most borrowers actually pay, as the below table illustrates:
Benchmark
Rate
Source
Effective rate paid on interest bearing balances
21.55%
Bank of England, August 20262
Average credit builder card APR
36.2%
ClearScore, January 20263
Average student card APR
18.9%
ClearScore, January 20264
While student credit cards come at much lower rates, they are not a universal first access product. In 2026, 31.6% of UK 18-year-olds had secured a higher education place by results day, meaning that nearly seven in ten had not secured a place at that point.5 Student card applications also remain subject to eligibility, status and affordability. For example, HSBC requires applicants for its student card to hold an HSBC Student Bank Account and says students will usually need some form of income (which many will not have).6
Young adults who do not enter higher education cannot rely on student cards as a route into credit. Those who want or need to establish a credit history may have to consider other products, potentially with higher rates, even though they are not necessarily higher risk to lend to than their student peers. Like others who first seek credit after leaving education or entering employment, they will typically have little evidence of previous borrowing and so cannot assume they will qualify for rates comparable with those available through student-specific products.
Representative APRs on individual credit builder cards currently range from around 30% to 49%, with most between 35% and 40%.7 Minimum payments are typically set at 1% of the balance plus that month’s interest, with a floor of £5 to £25.
The gap between the student rate and the credit builder rate is around 17 percentage points. That difference is notable because both products may serve people at an early stage of building a credit history, even though their eligibility criteria and target markets differ.
Credit builder cards are often described as “low and grow” products: the credit limit starts small, typically between £150 and £500, and increases over time as the customer uses the card and keeps up repayments. This may seem like a cautious design at first, but the stated purpose of a low and grow card is to grow.
StepChange’s research describes the pattern: limits start low, customers borrow, limits are increased, and customers may acquire further cards. Four in ten cardholders were offered a limit increase in the last year, including those already in problem debt.8 For a product whose income comes from balances that revolve, a rising limit is the business model working as intended. For a borrower who was told to keep the balance small and clear it monthly, it is an opening to do something else. This seems to us a mismatch between the advice given and the product offered, and we return to it below.
2 Bank of England (2026) Money and Credit.
3 ClearScore (2026) Average Credit Card Interest Rate (APR) 2026.
4 ClearScore (2026) Average Credit Card Interest Rate (APR) 2026.
5 UCAS (2026) Quarter of a million UK 18-year-olds gain place at university or college.
6 HSBC UK (2026) Student Credit Card.
7 Finder (2026) Compare credit builder cards.
8 StepChange (2026) Policy briefing: Credit cards, financial difficulty and persistent debt.
FCA rules state that a card’s minimum payment must at least cover that month’s interest, fees and charges, plus 1% of the balance (CONC 6.7.5R).9 And most credit builder cards sit at or close to that floor.
The effect is poorly understood. Whatever the interest rate, the balance falls by roughly 1% a month if only the minimum is paid. And the rate decides how much the borrower pays for the privilege.
Take £1,000 borrowed on a credit card at 39.9% APR, with no further spending. The first month’s interest is £28.37. The first minimum payment is £38.37. The debt falls by £10. Over the first year the borrower pays £436 and still owes £886.
Few people set out to repay a card over twenty years. But the structure matters, because the same debt at the same rate costs very different amounts depending on whether the payment is allowed to shrink. This is illustrated below.
£1,000 borrowed at 39.9% APR
Monthly payment
Time to clear
Total interest
Credit card, minimum payments only
£38.37, falling over time
20 years 11 months
£2,578
Credit card, payment held at the first minimum
£38.37
4 years 1 month
£845
Personal loan over 5 years, same APR
£34.88
5 years
£1,093
Personal loan over 3 years, same APR
£44.70
3 years
£609
Card minimum payment set at 1% of balance plus interest with a £5 floor. No further spending. Loqbox analysis, 2026.
The table shows that holding the payment at its starting level clears the debt in four years and saves over £1,700. Whereas a five year loan at the same rate costs less each month than the card’s first minimum payment and saves around £1,500. The interest rate is identical in every row. The difference is the repayment structure: a loan has a fixed end date, while declining minimum payments can extend a card balance for many years.
The minimum payment influences people’s behaviour. The FCA’s own research found that the presence of a minimum payment anchors repayments downwards, and that additional disclosure does not remove the effect.10 In a FCA survey of people paying the minimum, 48% thought it was an amount their provider recommended and 50% thought it was what most people chose to pay.11 Neither is true. A later peer reviewed study of UK card data attributed around 8% of all UK credit card interest and fees to this default effect alone.12 Further, in the FCA’s Financial Lives 2024 survey, one in three cardholders did not agree that the total cost of borrowing on their card was easy to understand.13
The gap between how the product is designed to be repaid and how the people using it understand it is what matters here. And it seems widest for those with the least experience, who are also the people most likely to be offered the highest rates.
10 Financial Conduct Authority (2018) Occasional Paper 43: Weighing anchor on credit card debt.
11 Financial Conduct Authority (2018) Occasional Paper 43: Weighing anchor on credit card debt.
12 Sakaguchi, H. et al. (2022) Default Effects of Credit Card Minimum Payments.
13 Financial Conduct Authority (2024) Financial Lives 2024 survey: Credit & loans.
Chapter 01
Chapter 02
Chapter 03
Chapter 04
Chapter 05
Chapter 06
Loqbox Impact Report 2026
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