Brits will find it harder to borrow cash as Bank of England issues warning | The Sun

BRITS will find it harder to borrow through credit cards and personal loans, according to The Bank of England.

The warning comes after loan rates hit their highest level in six years last month.


And the cost of borrowing is set to rise even further as the Bank of England (BoE) warned that interest rates could hit 6% next year.

Lenders have reported to the BoE that the availability of credit cards and personal loans to households fell between July and September.

And according to experts, typical household borrowing is set to get even harder over the next few months.

This means that anybody approved for a new credit card or personal loan people is likely to face higher rates.

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As banks tighten their lending, the consequences for those who don't get accepted for a new credit card or loan could be extremely detrimental.

Some could be forced to borrow money from the unregulated buy now pay later sector or through riskier and more costly payday loan firms.

Andrew Hagger of MoneyComms said: "Credit is likely to become harder to obtain as the big providers take a more cautious stance realising that more consumers will face financial issues in the near future.

"For those who are desperate for credit, it could see more taking expensive payday loans or even resorting to loan sharks."

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People's budgets are under pressure from the cost of living crisis which and push people into riskier borrowing.

Sarah Coles of Hargreaves Lansdown said: "There’s a risk that people will borrow in a desperate effort to make ends meet, but may struggle to repay the debt, so lenders are raising the bar when it comes to deciding who to lend to."

"It’s likely to mean that more of them fall behind on their payments. We’re also likely to see an uptick in the kind of borrowing they can access – like buy now pay later deals."

But it's vital to ask yourself if you actually need to borrow before committing to a new credit card of personal loan.

If you cannot afford to pay off a debt you currently have, then you should avoid taking out any more debt at all costs.

The news about borrowing affordability comes less than a month after the BoE raised interest rates by half a percentage point to 2.25% for the seventh time in a row.

The central bank has increased the rate to help control rampant inflation which is currently sitting at 9.9%.

However, the cost of borrowing often rises when the base rate increases, as banks usually pass it on to customers.

In turn, this reduces people's disposable income, which in turn drives down demand, helping to slow any price rises – bringing inflation down.

But it means people will face higher rates if they need to borrow money.

How will spiralling borrowing costs affect Brits?

If more and more people can't get accepted for regulated credit cards and personal loans, many may be forced to borrow from riskier avenues.

Some may turn to payday loans, which are usually given to people struggling to make their cash stretch until the next time they get paid.

But they usually come with high-interest rates. According to Money Helper over a year, the average annual percentage interest rate for a typical payday loan could be up to 1,500%.

Others may turn to buy now, pay later (BNPL), which in most cases allows individuals to borrow cash without undergoing a hard credit search.

BNPL is a type of borrowing which lets you make a purchase but delay paying for it.

Shoppers are able to spread the cost of their hauls out over monthly instalments – and it’s popular because it’s interest-free.

Companies offering this service include Klarna, Clearpay and Laybuy.

And while BNPL is convenient, it is a form of debt after all.

And if you can't pay it off in time you could face high late payment fees and marks on your credit file.

If you use BNPL frequently, it could also be a red flag to regulated lenders who might think you don't have enough funds to make payments in full upfront.

Especially now that BNPL purchases are beginning to appear on peoples’ credit reports.

Buy now, pay later is also unregulated so customers don't benefit from the same protections offered to those with credit cards.

This includes buyer protections listed in Section 75 of the Consumer Credit Act.

This protection means that if you pay for a big purchase on your credit card and something happens – like the goods aren't delivered or the shop goes bust – your card provider is just as responsible as the retailer to refund you.

How has the cost of personal loans increased?

According to MoneyFacts, individuals hoping to borrow £3,000 over the next three years face an average rate of 15.2%, compared to 14.3% this time last year.

Those wishing to borrow £5,000 over three years are facing an average rate of 8.5% compared to 6.8% a year earlier.

The average rate on a £7,500 loan tier now stands at 6.1%, compared to 4.4% in October 2021.

And the average annual rate of interest on the £10,000 loan tier sits at 6.1%, versus 4.5% last year.

The figures are average and take into account a variety of rates available, so you could still borrow at rates that are lower, or higher, depending on your circumstances.

How have credit card interest rates changed?

The average rate across all types of credit cards including fees has hit a new high of 29.8%, according to MoneyFacts.

The average annual rate of interest for credit cards right now has risen from 25% in October 2020 and 26% in October 2021.

Again the figures are average and take into account a variety of rates available, so your rate could be higher or lower still.

How can I reduce borrowing costs?

The first thing borrowers can do is try to improve their credit score.

Boost your credit score

Getting on the electoral register is a must when it comes to building a decent credit score.

This proves who you are and where you live meaning it's easier to get credit if you're on the list.

It is also wise to check the electoral roll for any errors. You can sign up by registering to vote.

Don't make too many credit applications as it can be seen as a sign of financial distress – and each application will be recorded on your file.

Use a "soft-search" eligibility calculator to show how likely you are to be accepted.

Always pay your bills as late payments are also recorded in your file.

Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.

Lighten your loans

If you took out a loan a couple of years ago, it may be worth searching for a better deal.

Using a new loan at a lower rate to pay off an old one can sometimes make sense.

But remember, not everyone gets the rates advertised by lenders, as these are reserved for those with good credit ratings.

Check which loans you’re most likely to get without damaging your score by using an eligibility tool such as the one on Compare The Market or MoneySavingExpert.com.

Blitz your credit card balance

Do not let credit card debt linger. If you’re just paying the minimum each month, it could take decades to clear.

Only making the average 2.5% minimum monthly payment on a £5,000 balance means it would take you nearly 38 years to pay back and cost nearly £15,000 in total, on a typical interest rate of 22%.

Switch to a balance transfer credit card to get a window of up to 34 months with no interest charged.

Break the total debt down into monthly payments and set up a direct debit to ensure you wipe the balance in that time. If that’s impossible, try to switch again to a new card.

But not everyone can get the top balance transfer deals, as they require an excellent credit score.

Find out which cards you’re most likely to get with the eligibility checkers on Go Compare or Uswitch.

Obliterate overdraft charges

Dipping into your overdraft can be one of the priciest ways to borrow, with some banks charging 40% interest – almost double the average credit card rate.

Move to a bank with a free overdraft. To pay off larger overdraft debts, a money transfer credit card could give you an interest-free respite, but beware of high fees.

How can I get debt help?

Sarah Coles of Hargreaves Lansdown said: "If you find yourself in this position, it’s vital to get help sooner rather than later.

"Speak to a debt charity like StepChange They can help you with everything from seeing if there’s any state help you can get, to cutting your costs, and dealing with any problem debts that have been building."

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If you're in debt there are plenty of services you can take advantage of and they offer free advice on how to manage debt.

Most of them can offer you free guidance and help in person, over the telephone or online.

  • Money Helper – 0800 138 7777
  • Citizens Advice – 0808 800 9060
  • StepChange – 0800 138 1111
  • National Debtline – 0808 808 4000

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