Cost of borrowing reaches record highs
The cost of consumer credit has increased again in August, according to the latest Bank of England figures.
The current macroeconomic environment, with rising interest rates, mortgage rates and inflation, has helped push quoted household rates on consumer credit products increase by at least 0.1 percentage points.
This includes rates on credit cards, £5,000 and £10,000 personal loans. The analysis from digital lending marketplace Freedom Finance showed that credit card rates, at 21.79 per cent, are at their highest level since 1998 and overdraft rates continue to set new records.
Read more: Consumer borrowing jumps again in July
The average quoted rate for a £10,000 personal loan reached 4.38 per cent, and for a £5,000 loan it rose to 8.41 per cent, their highest levels since December 2015 and March 2017, respectively.
“As the cost of borrowing increases, it is vital that households ensure they are following best practise when shopping for loans,” said David Hendry, chief marketing officer at Freedom Finance.
“As a very first step, customers should be shopping around to explore the best rates and products that are available to them, not just accepting the first offer or one from their existing provider.”
Read more: Cost of unsecured borrowing on the rise
He also warned that it is likely to continue to be a challenging period for people’s finances, despite the announcement of a price cap on energy bills, which has “calmed immediate fears for the coming winter”. His warning comes at a time when the Bank of England raised rates to 2.25 per cent.
According to the Office for National Statistics one in five adults reported they had to borrow more money or take our more credit in the past month, compared with a year ago.
As part of its analysis Freedom Finance published a five-point plan for consumers. It includes carrying out an audit of existing debt; checking on eligibility for benefits; using digital marketplaces to shop around for cheapest deals; consolidating debt; and prioritising paying off the most expensive debt first.
Read more: Consumer borrowing booms as savings shrink