Credit: Cost of personal borrowing hits six-year high

Credit: Average overdraft rates have been consistently rising to new highs. Photo: PA (PA)

The cost of getting a personal loan is starting to rise amid the cost of living crisis, with rates hitting their highest level for nearly six years.

The average rate for a £10,000 loan was 4.11%, the highest since August 2016. In the case of a £5,000 personal, rates rose to 8.2% in June, up from 8.14% in May, according to the latest borrowing statistics from the Bank of England.

Read more: Interest rate rises to hit 40% of UK mortgages, warns Bank of England

“The latest consumer credit data paints a gloomy picture with the cost of borrowing continuing to increase as inflation spikes and the Bank continues to hike interest rates,” said David Hendry, chief marketing officer at Freedom Finance.

“In addition, with rates expected to continue rising for the foreseeable future, immediate action may allow borrowers to lock in rates on consumer credit products over fixed-terms to limit the impact of increasing rates.”

Analysis from the fintech lender revealed that the average credit card rates jumped to 21.43% and are now approaching levels not seen since 1998 which was the last time that average rates surpassed 21.50%

Average overdraft rates have been consistently rising to new highs since recent regulations were introduced in April 2020. They stalled in June at 35.24%, the same rate as May, although this remains a record level.

The data comes after a warning from the FCA last week urging borrowers in financial difficulty to seek help or contact their lender as soon as possible if they are struggling to make payments.

Read more: Cost of living weighs on UK retail sales as consumers reign in spending

“The FCA’s intervention last week was timely and important – we wholeheartedly support it. Getting into financial difficulty is not something to be embarrassed about, and the sooner people take action the better. There may be immediate steps they can take to relieve financial pressures,” Hendry added.

Watch: Why your bank statements might say buy-now-pay-later without you realising