Credit card rates dip while personal loans keep rising
A drop off in credit card borrowing in December led to a marginal decrease in interest rates, according to the latest Bank of England figures.
The bank’s figures – analysed by broker Freedom Finance – show that consumers repaid £0.5bn of net credit card debt in the final month of 2022. Average quoted household rates dropped to 22.46 per cent in January 2023 compared to 22.48 per cent a month earlier, but still remain at levels not seen since 1998 and have increased from 21.43 per cent a year ago.
The cost of personal loans continued to rise – albeit at a slower pace compared to previous months – with average rates for £10,000 personal loans nudging up to 6.02 per cent in January from 6.01 per cent a month earlier. In January 2022 rates stood at 3.94 per cent.
Rates on £5,000 personal loans increased to 10.26 per cent through January (10.19 per cent in December) and have grown sharply through 2022 from 7.82 per cent a year before.
Read more: Interest rates rising at record rate for unsecured personal loans
The data comes amid record levels of lending from credit unions in the UK with total borrowing equalling £1.92bn and growing by over £250m over the past year.
“Consumer credit products have become increasingly expensive over the past year as a rising rate environment impacts how much we can borrow and at what price,” said Emma Steeley, chief executive at Freedom Finance.
“In the mainstream lending market, institutions need to make sure they are doing everything in their power to maintain and increase access to the credit market, so that everybody has a fair chance of finding a product that suits their need.
Read more: Even higher earners are facing “dangerous debts”
“Consumers also need to make sure that they are making the most of all the tools and technologies at their disposal. This involves shopping around and comparing different products to ensure they are not just taking the first one on offer or an offer from their incumbent provider.
“With loan prices likely to stay higher as interest rates remain at elevated levels compared to recent years, these steps are crucial to supporting personal finances and achieving good outcomes.”
Read more: Zopa, RateSetter join Freedom Finance marketplace