This percentage is the highest since September 2016, when it was 4.11%, when the base rate was only 0.25% and the consumer price index was 1, 3%.
Personal loans worth £5,000 also hit recent highs with the average rate quoted at 8.35% last month – a level not seen since March 2017, when it was 9.54%.
Despite these increases, Freedom Finance says they remain one of the cheapest forms of borrowing for many consumers, so demand for them is expected through the rest of this year – with consumer borrowing already outpacing the pre-pandemic average over the last three months.
Average overdraft rates increased significantly in April 2020 to 30.47% from 24.21% the previous month following new regulations requiring businesses to charge a simpler annual interest rate.
Since then, overdraft rates have reached new highs – with average rates reaching 35.26% in May 2022. This is a significant increase from the 34.12% recorded in April 2022, which was in itself the first time that rates exceeded 34%.
According to Freedom Finance’s Chief Marketing Officer, David Hendry, the data showed that the economic environment had an impact on the cost of consumer borrowing. He explained: “The Bank of England is raising interest rates to try to limit inflationary pressures, but the cost of borrowing is also rising.
“This is another blow to consumers who are starting to see notable increases in mortgage rates and other consumer credit rates. Personal loans are now at their highest level in more than five years while mortgage rates discovered continue to set new records.
“For people who are already in debt or struggling to make ends meet, it is essential that they consider how to reduce their repayments on existing credit by finding the best possible rates available to them.”