Cost of consumer credit ratchets up again in August

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Analysis of the latest Bank of England figures find that quoted household interest rates on consumer credit continued to rise in August amid an economic environment of rising interest rates, mortgage rates and inflation.

The analysis from Freedom Finance, one of the UK’s leading digital lending marketplaces, demonstrates the impact of the rising cost of borrowing on households and they urged consumers to shop around for credit using best practise. With the BoE set to hike interest rates further today, the analysis from Freedom Finance shows:

  • Credit card rates jumped a further 0.13 percentage points since July to hit 21.79% in August – the highest average monthly rate since December 1998 (22.19%).
  • The average quoted rate for a £10k personal loan grew by 0.20 percentage points to 4.38% and is now at its highest level since December 2015 (4.45%).
  • The average rate for a £5k personal loan also ticked up by 0.12 percentage points to 8.41% in August and is at its highest level since March 2017 (9.54%).
  • Average overdraft rates spiked in April 2020 when new regulations were introduced but they have been consistently rising to new highs even since then. They stalled in August at 35.29%, the same rate as July, although this remains an all-time peak.

David Hendry, Chief Marketing Officer at Freedom Finance, said: “While the price cap announcement may have calmed immediate fears for the coming winter, it’s still likely to be a challenging period for our finances. The lending industry can play a positive role in helping people manage their money, but consumers must also do their bit to make the credit market work for them.

“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.”