Consumer credit getting cheaper as interest rates fall in 2023

The cost of consumer credit is starting to ease, with the average rates on credit cards, personal loans and overdrafts all falling since the end of 2022.

According to the latest Bank of England data, the cost of £5,000 personal loans fell to 10.08 per cent in February, from 10.19 per cent in December 2022 – but remain far higher than the 7.73 per cent recorded in February 2022. Rates have now registered consecutive monthly falls following seven months of consecutive increases.

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For £10,000 personal loans, the rate dropped back to 5.94 per cent in February 2023, having recorded 10 consecutive monthly increases to the end of 2022, where the rate reached 6.01 per cent. In February 2022 the rate was 3.84 per cent.

Credit card rates reached their highest level this millennium, reaching 22.48 per cent at the end of 2022. They remain at historic highs but have nudged down to 22.44 per cent in February, up from 21.44 per cent in February 2022.

“Consumer credit has not escaped the economic and cost-of-living headwinds of the past year with average rates seeing substantial increases,” said Andrew Fisher, chief growth officer at Freedom Finance, the digital lending marketplace.

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“However, with the interest rate raising cycle appearing to be near an end and the economic outlook brightening, I am delighted for our customers who can benefit from this as the cost of consumer credit borrowing starts to fall back just as we have seen in the mortgage market.

“If rates continue to fall we expect to see growing demand from consumers looking to consolidate debt, particularly those people who took out products when borrowing was at its most expensive.”

Total consumer credit borrowing reached £1.6 billion in January, its highest level since June 2022.

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