Personal loan rates hit their highest level in more than five years
Interest rates on consumer loans have risen to their highest level in more than five years, amid soaring inflation and a rate hike by the Bank of England.
An analysis of Bank of England data from broker Freedom Finance found that the average interest rate for a £10,000 personal loan was 4.06% in May, the highest level since September 2016 (4, 11%).
In addition, personal loans of £5,000 reached an average rate of 8.35%, the highest level since March 2017 (9.54%).
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Freedom Finance said that despite the recent rise in personal loan rates, they are still one of the cheapest forms of borrowing for many consumers, so demand for them is expected to rise throughout the year. The broker noted that consumer borrowing has exceeded the pre-pandemic average for the past three consecutive months.
The central bank’s base rate is now at 1% after consecutive rate hikes, while the current inflation rate is 9% – well above the Bank’s 2% target.
David Hendry, chief marketing officer at Freedom Finance, said data shows the economic environment has had an impact on the cost of consumer borrowing.
Read more: BoE: consumer borrowing soared in April
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“The Bank of England is raising interest rates to try to limit inflationary pressures, but the cost of borrowing is also rising,” he said. “This is yet another blow to consumers who are starting to see notable increases in mortgage rates and other consumer credit rates.
“Personal loans are now at their highest level in more than five years while overdraft rates continue to hit new highs. For people who are already in debt or struggling to make ends meet, it is essential that they consider how to reduce their repayments on existing credit by finding the best possible rates available to them.