Personal loan rates record highest ever quarterly increase

Analysis of the latest Bank of England data on average quoted household rates by Freedom Finance has indicated that unsecured personal loan rates are growing at their fastest ever pace.

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.

The story is similar for personal loans worth £10,000 with these products increasing 1.68 pp through the last three months of the year, also registering a quarterly high. Rates are now at an average of 6.04% which, as with £5k loans, were also last surpassed in October 2013.

The analysis found that credit card rates have likewise continued to rise sharply, growing by a further 0.57 pp in the last quarter taking average rates to 22.46% – their highest level in 25 years when rates reached 22.49% in January 1998.

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 said “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. Much of the focus has been on escalating mortgage rates, but consumer credit has not avoided the spike in borrowing costs.”

“Unsecured personal loans grew at their fastest ever rate in the last quarter of the year, and credit cards are at a 25-year high. Given that credit card borrowing has climbed to its highest level since 2004, it is clear that the appetite for consumer credit remains strong among many UK households.”

“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.”  

“The latest technology can really help, using marketplaces that only show borrowers the products that they are eligible for avoids applicants harming their credit score with declined loans, while the extra data available to open banking providers may even change a customer’s risk profile.”