Cost of borrowing jumps again for major consumer credit products – latest Bank of England data

The latest Bank of England household interest rate figures1 reveal the cost of borrowing continued to increase in June across consumer credit products following a warning from the FCA for people in financial difficulty.

The analysis from Freedom Finance, one of the UK’s leading digital lending marketplaces, found that average credit card rates jumped to 21.43% and are now approaching levels not seen since 1998 which was the last time that average rates surpassed 21.50%

Personal loan borrowing is typically cheaper but rates for these products are starting to rise too.

The average rate for a £10k personal loan is now 4.11% – its highest level for nearly six years since rates hit 4.14% in August 2016. The average rate for a £5k personal loan also ticked up to 8.20% in June compared to 8.14% in May.

Average overdraft rates have been consistently rising to new highs since recent regulations were introduced in April 2020. They stalled in June at 35.24%, the same rate as May, although this remains a record level.

The data comes after a warning from the FCA2 last week urging borrowers in financial difficulty to seek help or contact their lender as soon as possible if they are struggling to make payments.

David Hendry, Chief Marketing Officer at Freedom Finance, said this was particularly vital given the expected increases in base rate that could drive the cost of borrowing even higher.

“The latest consumer credit data paints a gloomy picture with the cost of borrowing continuing to increase as inflation spikes and the Bank continues to hike interest rates. Overdraft rates are at record highs, credit cards are nearing their highest rates since before the Millennium and personal loans are also becoming more expensive.

“It all adds up to a painful situation for household incomes and budgets. The FCA’s intervention last week was timely and important – we wholeheartedly support it. Getting into financial difficulty is not something to be embarrassed about, and the sooner people take action the better.

“There may be immediate steps they can take to relieve financial pressures, such as checking eligibility for benefits they may be missing out on or consolidating multiple debts into a single payment to make repayments simpler. Lenders may also be able to help with actions like payment holidays.

“From free debt advice and government- or charity-backed benefit checkers to digital marketplaces that help people find the most appropriate product that they are eligible for, there are a vast array of free resources in place to help people with their personal finances.

“In addition, with rates expected to continue rising for the foreseeable future, immediate action may allow borrowers to lock in rates on consumer credit products over fixed-terms to limit the impact of increasing rates.”

The Freedom Finance five-point plan provides a helpful starting point for people thinking about how they should best manage their consumer credit commitments:

The Freedom Finance Five-Point Plan for Consumer Credit

  1. Carry out an audit of existing debt to see what rates you are currently on and whether there are cheaper deals available. Check that you aren’t being stung by any hidden fees or charges and that you understand what your total payments will be instead of just taking the lowest monthly payment
  2. Check your eligibility for benefits like Universal Credit, Jobseekers Allowance and Housing Benefit which may reduce your need for consumer credit
  3. Use digital marketplaces and online services to shop around for the cheapest deals
  4. Consolidate debt where possible to help you keep track of repayments more easily while moving debt to products with a cheaper rate
  5. Prioritise paying off your most expensive debt to try and move credit commitments onto cheaper rates or products