Personal loan rates record highest ever quarterly increase

Unsecured personal loan rates are growing at their fastest ever pace, according to analysis of the latest Bank of England data from Freedom Finance, one of the UK’s leading digital lending marketplaces.

Through the final three months of 2022, £5k personal loans increased by 1.92 percentage points (pp), the biggest ever quarterly increase. It takes the average quoted household rate for these products to 10.32%, the highest level recorded since nearly a decade ago in October 2013.

Rates on £10,000 personal loans increased 1.68 pp through the last three months of the year, also registering a quarterly high. Credit card rates also continued to rise sharply, growing by 0.57 pp in the last quarter taking average rates to 22.46% – their highest level in 25 years.

Amid the rising interest rates on unsecured credit, an increasing number of borrowers have turned to secured lending in search of lower rates and longer repayment periods. Industry figures show second charge mortgages, where a borrower secures the loan against an existing mortgaged property, increased almost 50% in the 12 months to October 2022.

Emma Steeley, CEO at Freedom Finance, commented: “While there are hopes that inflation may be easing and the aggressive Bank of England rate rises are nearing an end, the pain for household budgets continues to worsen.

“A rapidly changing credit market means people may need to change the way they think about getting finance. This involves shopping around between different providers and also products, for something that suits their needs and is affordable.”