There have been so many financial changes in people’s lives due to worldwide events over the past few years. The COVID-19 pandemic, the war in Ukraine, as well as the cost-of-living crisis that is currently impacting the UK . These changes have led to increased fuel costs, rising interest rates and increased energy bills.
With so many price increases occurring, it’s only natural that we ask, ‘what next?’. There are many things that can be affected by world events, and personal loans look to be increasing as we go into the new year.
But why is this? To help you better understand, we’ve prepared a guide to the issue and what it might mean for your finances going forward. Read on to find out more. Why are interest rates rising?
Can we Add in a Brief Sentence Around What are Interest Rates?
Interest rates are the main reason for personal loans becoming more expensive. Larger interest rates mean you pay back more on what you borrow, thus making the loan more expensive.
Interest rates are expected to rise to 5% next year with the Bank of England increasing the base rates to 2.25%. This means any new loans will cost you even more to pay back. Interest rates were historically low in the UK but leading economists believe that era is now over.
How will this Impact Existing loans?
Those with existing unsecured loans, such as a loan for their car on finance or a short-term loan shouldn’t be affected by the increased interest rate. This is because the loan has an agreed-upon fixed interest rate from the day you took the loan out. So, if you’ve been worried about your repayments going up, fear not.
Other loans like credit cards or overdrafts, however, may find their banks increasing the interest rates to match the Bank of England’s rates. They will notify you of this before it occurs, however, and you’ll have the option to pay off your debt and close your account if you want to.
What are Different Borrowing Options to Look at?
If you’re worried about interest rates and borrowing then looking into various options such as bad credit loans can help you to plan ahead. Some other examples include:
- Borrowing from friends and family members to avoid interest rates
- Credit cards with 0% interest for the first 1 year or longer
- Buy now, pay later payment methods like Klarna (isn’t this mainly used for retail/online shopping etc? Not sure this is a responsible suggestion?)
With much uncertainty in the world at the moment, the last thing you need is to worry more about your finances. Instead, opt for loan options that bear smaller risks and feel financially secure again.
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