BoE: Cost of borrowing jumps for consumer credit products

The news comes following a warning from the Financial Conduct Authority (FCA) for people in financial difficulty.

Analysis from digital lending marketplace Freedom Finance 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 21.5%.

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 FCA 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.”