Credit card and personal loan rates decline in first quarter

13th April 2023

Analysis of the latest Bank of England data on average quoted household interest rates from Freedom Finance has raised hopes that consumer credit rates may now be in reverse after a year of sustained increases in the cost of borrowing.

The data shows that average rates on personal loans of £5k and £10k as well as credit cards all declined in Quarter 1 (Q1) 2023. It is the first time rates on all three products have registered a quarterly decrease since Q2 2020 amid the outbreak of the pandemic.

Analysis of the Bank of England data found that £5k Personal Loans: Average rates on £5k personal loans dropped by 0.10 percentage points (pp) in Q1 2023, falling back to 10.09%. This follows quarterly increases of 0.28pp, 0.20pp and 1.79pp through Q2-Q4 2022 so rates are still far higher than Q1 2022 – 7.92%.

Whilst the rates on £10k personal loan rates dropped by 0.13pp off the back of significant previous quarterly increases of 0.24pp, 0.23pp and 1.65pp through the final three quarters of 2022. It means average rates are 5.88% as of Q1 2023 compared to 3.89% a year ago.

Meanwhile, credit card rates nudged down by 0.01pp through Q1 2023, however they have increased by over a full percentage point over the past 12 months, rising from 21.42% in Q1 2022 to 22.47% as of the latest data.

Whilst overdraft rates remained steady at 35.26% in the first quarter of the year but have grown from 33.99% in Q1 2022 to record fresh all-time highs.

Despite the recent decline in the cost of borrowing, rates remain substantially higher than a year ago and appetite for consumer credit remains strong with an annual growth of rate of 7.7% – the highest seen since November 2018 according to the Bank of England. The IMF has also predicted that rises in borrowing costs are likely to be “temporary” once inflation is brought under control.

Andrew Fisher, Chief Growth Officer at Freedom Finance said “Relative market calm and an expectation that inflation will now trend downwards have helped to drive down rates across all major consumer credit products in the first quarter of the year. However, uncertainty lingers over the course of the Bank of England’s base rate which could also impact the cost of borrowing.”

“Our message for those hunting for credit remains the same: use the technology available, shop around and explore different products to make sure you are getting a deal that suits your circumstances. Many people will have increased the debt they hold due to the cost-of-living crisis and so the debt consolidation market – including second charge mortgages – is likely to be busy in 2023.”