Credit card rates dip after December repayments

9th February 2023

Analysis of the latest Bank of England data on average quoted household rates from Freedom Finance shows a mixed picture for the cost of consumer credit products at the start of 2023.

Total credit card borrowing dropped in December as consumers repaid £0.5 billion of net credit card debt and this perhaps drove a more competitive pricing market in January. Average quoted household rates dropped to 22.46% in January 2023 compared to 22.48% a month earlier, but still remain at levels not seen since 1998 and have increased from 21.43% a year ago.

Personal loans continued to rise in price,albeit at a slower pace compared to previous months – with average rates for £10k personal loans nudging up to 6.02% in January from 6.01% a month earlier. Again, it still marks a significant uptick from a year earlier when rates stood at 3.94%.

Rates on £5k personal loans increased to 10.26% through January (10.19% in December) and have likewise grown sharply through 2022 from 7.82% a year prior.
The data comes amid record levels of lending from Credit Unions in the UK with total borrowing equalling £1.92 billion and growing by over £250 million over the past year as more people look for affordable borrowing products.

Emma Steeley, CEO at Freedom Finance, said “Consumer credit products have become increasingly expensive over the past year as a rising rate environment impacts how much we can borrow and at what price.”

“While personal loans ticked up again in January, the cost of borrowing on credit cards dipped slightly which perhaps reflects a drop in borrowing as customers repaid over £460 million of the nation’s net credit card balance. It is unsurprising in this landscape that demand for Credit Union membership has been continually rising, and these co-operatives are now lending record sums of money.”

“In the mainstream lending market, institutions need to make sure they are doing everything in their power to maintain and increase access to the credit market, so that everybody has a fair chance of finding a product that suits their need.Consumers also need to make sure that they are making the most of all the tools and technologies at their disposal. This involves shopping around and comparing different products to ensure they are not just taking the first one on offer or an offer from their incumbent provider.”

“New technologies are making a difference with soft-search technology and digital marketplaces helping consumers view a wide range of providers while excluding those products that they are not eligible for. It avoids overwhelming choice and declined applications which can harm credit scores. The extra data from open banking providers may even change a customer’s risk profile, opening up more products.“With loan prices likely to stay higher as interest rates remain at elevated levels compared to recent years, these steps are crucial to supporting personal finances and achieving good outcomes.”