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Overdraft rates hit record high as cost of living bites

·Finance Reporter, Yahoo Finance UK
·1-min read
Overdraft  A man repairs a cash machine outside a bank in London, November 25, 2009.  Banks won a two-year British court battle over overdraft charges on Wednesday, dealing a blow to hundreds of thousands of customers seeking to claim back billions of pounds which they say were levied unfairly.     REUTERS/Luke MacGregor   (BRITAIN BUSINESS)
Overdraft rates have increased from 20.99% in February 2020 to 34.07% in April 2022. Photo: Luke MacGregor/Reuters

Overdraft rates have jumped since the start of the pandemic to 34.07%, the highest level since 1995, new figures show.

Overdraft rates have increased from 20.99% in February 2020 to 34.07% in April 2022, according to research by digital lender Freedom Finance. This marks an increase of 62% since the start of the pandemic and is the largest recorded figure since the data series began in 1995.

Read more: One in three struggle to access credit in UK as lenders refuse loans

As households feel the cost of living squeeze, credit card rates have increased to 21.4%, a level not since the late 1990s.

David Hendry, chief marketing officer at Freedom Finance, said: “We are expecting to see an increase in demand for lower-cost personal loans as households look to manage their finances and consolidate these higher-cost forms of borrowing into products with lower rates.

“After paying down their most expensive debt, the next priority for households should be shopping around when looking at credit and using digital marketplaces to ensure they are applying for products they are eligible for at the very best rates to avoid harming their credit score through failed applications.”

Read more: Cost of living crisis: Six in 10 cutting back on essentials to make ends meet

The cost of borrowing on £10,000 personal loans bucks the trend and remains well below historic levels at 3.96% although it has shown recent signs of growth, ticking up from a low of 3.37% in September 2020, according to Freedom Finance.

Watch: Easy budgeting tips for when you leave home

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