Personal loans see second biggest monthly spike on record

Analysis of the latest Bank of England figures from Freedom Finance, has found that the average quoted household rates on personal loans are accelerating sharply.

Rates on both £5,000 and £10,000 personal loans registered the second largest monthly increase ever recorded and grew to their highest levels in recent years.

The average quoted household rate on a £5,000 personal loan rose by 0.79 percentage points to reach 9.19% at the end of October. Only April 2011 (0.94 percentage points) has seen a larger monthly rise in rates which are now at their highest level since 2017.

£10,000 personal loan rates rose by 0.81 percentage points – only the 1.05 percentage point rise in May 2011 has surpassed this monthly growth – and now stands at 5.17%. Rates on personal loans of this size were last above this mark in 2014.

Rates on credit cards and overdrafts were broadly flat in October but have risen throughout the year.

In the latest Bank of England Credit Conditions Survey for Q3 2022, lenders reported that the availability of unsecured credit to households slightly decreased in Q3 and was expected to decrease further in Q4.

Emma Steeley, CEO at Freedom Finance, said the sharp rise in personal loan rates demonstrated how the rising cost of borrowing was starting to feed into lender appetite and affect all forms of consumer credit. “Borrowers have been battered this year by the rising cost of credit on secured and unsecured lending as interest rates have increased. Average mortgage rates have breached 6%, and this year credit card rates have surpassed levels not seen since the 1990s while overdraft rates are at their highest ever.”

“This high-cost environment is now starting to roll into personal loans which surged this month. Personal loan rates are also a reflection of lender appetite, so this increase demonstrates the economic pain the UK is starting to suffer from.”

“Our message for consumers looking for personal loans remains that they must ensure they are taking all the measures available to them to get the best and most appropriate products for their circumstances.”

“Digital marketplaces are a great way to shop around as they automate the process through just a single application and, because they use soft-search technology, consumers will only be offered loans or credit cards that they are more likely eligible for.”

“As we’ve seen from the latest Credit Union data, record numbers of people in the UK are hunting for affordable credit to support them in this tough economic time. The lending industry can play a positive role in helping people manage their money through this difficult period, using its data assets to provide a wide range of products and services to its customers.”