Cost of borrowing warning: personal loans soar to highest rates since 2013 and credit cards since 1998

Analysis of the latest Bank of England data on average quoted household rates from Freedom Finance, one of the UK’s leading digital lending marketplaces, shows that the cost of borrowing continues to accelerate placing further pressure on household budgets.

Following significant increases in the cost of personal loans in October, this trend continued in November with both £5,000 and £10,000 loans posting their most expensive average rates since 2013. Credit card rates also posted further increases and are at their highest level since 1998 – over 24 years ago.

As inflation and the Bank of England’s base rate have accelerated through the year, Freedom Finance’s analysis of the cost of borrowing found:

  • The average quoted household rate on a £5,000 personal loan rose by 0.64 percentage points (pp) to 10.02% at the end of November.
  • This follows a 0.98 pp increase the previous month and takes average rates for loans of this size into double digits for the first time since December 2013.
  • £10,000 personal loan rates increased by 0.73 percentage points in November – again following a jumbo 0.86 pp rise last month – reaching 5.95%, the highest level since October 2013.
  • Credit card rates grew by 0.20 percentage points to 22.03% – their highest average rate since 1998.

Emma Steeley, CEO at Freedom Finance, commented: “As we head into a winter dominated by fears over energy bills, blackouts and surging inflation, the latest figures on the cost of borrowing will only add to the headaches many households are nursing.

“Loans, credit cards and overdrafts are all becoming more expensive and so people need to be taking extra steps to ensure that they are getting the best products for their financial situation and at the best possible rates.

“This means shopping around between different providers and using marketplaces that, through a single application, will only show borrowers the products that they are eligible for to increase their confidence and avoid harming their credit score with a declined application.

“Just because the cost of borrowing is rising doesn’t mean consumers should be paying above-average rates on their credit products. Following simple best practice actions can help people secure a product that suits their circumstances, supports their financial situation and is delivered at the best rate available to them.”

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. Before you apply for credit, check to see if you have any existing debt and what rates you are currently on – there may be cheaper deals available. Beware of any hidden fees or charges and be sure to understand the total cost of any loan is, taking the option with the lowest monthly payments isn’t always the cheapest option overall
  2. Always shop around for the cheapest deals by using soft searches that don’t harm your credit score. Digital marketplaces and online services can compare lenders without leaving a mark on your credit history
  3. Consolidate debt where possible to help you keep track of repayments more easily while potentially moving existing debt to products with a cheaper rate. If you do extend the period of payments this could increase the overall amount that you repay so please pay attention to this
  4. Once you have a new loan, prioritise paying off your most expensive debt first
  5. If you are really struggling financially you may be able to get extra help, if you are not sure, check your eligibility for benefits like Universal Credit, Jobseekers Allowance and Housing Benefit which may reduce your need for consumer credit