Loan rates rise to six year high, but 0% cards improve

The average rate on a £7,500 loan stands at 5.2%, the highest it has been in six years when it matched this figure.

Traditionally, this tier has been of value for many loan providers who widely use it as a representative Annual Percentage Rate (APR). This is why it has been a hotspot for competition.

Add a cost-of-living crisis to the mix, the potential risk for borrowers to default is elevated, so lenders have moved to reprice in response. A few lenders that charge less than 3% remain in this space, but whether this is maintained in the weeks to come is uncertain.

Meanwhile, average unsecured personal loan rates for £5,000 over three years, £7,500 over five years and £10,000 over five years are up compared to the beginning of March 2022.

The biggest trend noted across the credit card market has been a rise in the average length of introductory 0% balance transfer offers.

Several providers improved their terms during the second quarter of 2022, seeing the average interest-free introductory balance transfer term rise to 613 days, the highest point since May 2018. HSBC, Halifax, M&S Bank, Sainsbury’s Bank, Santander, and Virgin Money all increased 0% offers for balance transfers, a few of which hold a market-leading position.

Still, consumers must be conscious that the longest 0% offer may not be the best for them, particularly as there are lower transfer fee options available on the market.

It is always important to consider the APR you will have to eventually pay after a 0% offer ends. In fact, between the start of March and the start of June, the average purchase APR (which includes card fees) rose to an all-time high of 26.7%, according to our records, which go back to June 2006.

In addition, anyone comparing deals, whether that be to consolidate debts with a loan or move their credit card balance to an interest-free deal, would be wise to check their credit score before they apply, such as with Experian or Totally Money.

The months ahead are uncertain amid the rise in the cost of living but seeking advice from a debt advice charity is wise should borrowers be struggling or fear they will be unable to keep up with their repayments.