Interest rates for unsecured personal loans are growing at the fastest pace on record, according to research by Freedom Finance.
The digital lending marketplace’s analysis of the latest Bank of England stats on quoted household interest rates found that, in the final three months of 2022, £5,000 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 per cent, the highest level since October 2013.
The rate for personal loans worth £10,000 increased by 1.68 pp in the fourth quarter of 2022. Rates are now at an average of 6.04 per cent which, as with £5,000 loans, were also last surpassed in October 2013.
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The analysis also found that credit card rates have also continued to rise sharply, growing by 0.57 pp in the last quarter, taking average rates to 22.46 per cent – their highest level in 25 years when rates reached 22.49 per cent.
The figures also showed that an increasing number of borrowers are turning to secured lending as they look for lower rates and longer repayment periods. Second charge mortgages, where a borrower secures the loan against a mortgaged property, increased almost 50 per cent in the 12 months to October 2022.
Read more: Consumer debt rose by a third in 2022
“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,” said Emma Steeley, chief executive at Freedom Finance.
“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.”
She added: “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.”
Read more: 1.7m borrowers turn to high cost lenders
