Last week the Bank of England raised interest rates to 5% in response to prices rising by a further 8.7% in May. Many motorists relying on car finance may now be facing financial difficulties as their mortgage or rent payments increase.
We explain why this action has been taken and outline the help lenders must consider providing to assist those struggling to repay debt.
If you need to find an affordable car quickly then check out Total Car Check’s free local vehicle sales tool
What is happening to cause a further increase in interest rates?
- The rate prices are increasing generally, known as inflation, remained high at 8.7% in April and May. It was expected that inflation would fall in May but it didn’t.
- The interest rate, set by the Bank of England (bank rate), determines the cost of borrowing and interest earnings on savings in the UK.
- Increasing the bank rate aims to incentivise people to spend less and start saving. The rate has increased for 13 consecutive months, growing from just 0.1% in December 2021 to 5% in June 2023.
- Over time rate increases have the affect of ‘cooling down’ demand. With people buying less goods and services this helps to lower prices, reducing inflation.
What happens when interest rates rise?
Borrowing costs increase and therefore mortgages and loans become less affordable. If you have a variable rate or tracker mortgage then you will see an instant increase in the monthly payments you are required to make. It may also lead eventually to higher rent payments. Landlords that face higher mortgage costs themselves may start passing these on to tenants.
Why is inflation so bad?
Because consistently high levels of inflation reduce the amount we can buy, lowering our standard of living. Wages do not tend to rise as quickly as inflation – as we have seen in the public sector and the strikes this has caused. If left to settle in inflation can spiral up out of control. It is therefore taken very seriously by the Government and the Bank of England.
Will interest rate increases affect my car finance loan?
Not immediately. All car finance loans and personal loans tend to be ‘fixed rate’ these days. Over the period of the finance agreement (term) an increase in the bank rate will not change what you pay.
But it may make the finance deals available on your next car purchase less affordable. Also if your mortgage or rent increases then you may find you are struggling to afford your car finance loan. For many of us car finance is a necessary evil to ensure we can travel to work and m
Last week the Bank of England raised interest rates to 5% in response to prices rising by a further 8.7% in May. Many motorists relying on car finance may now be facing financial difficulties as their mortgage or rent payments increase.
We explain why this action has been taken and outline the help lenders must consider providing to assist those struggling to repay debt.
If you need to find an affordable car quickly then check out Total Car Check’s free local vehicle sales tool
What is happening to cause a further increase in interest rates?
- The rate prices are increasing generally, known as inflation, remained high at 8.7% in April and May. It was expected that inflation would fall in May but it didn’t.
- The interest rate, set by the Bank of England (bank rate), determines the cost of borrowing and interest earnings on savings in the UK.
- Increasing the bank rate aims to incentivise people to spend less and start saving. The rate has increased for 13 consecutive months, growing from just 0.1% in December 2021 to 5% in June 2023.
- Over time rate increases have the affect of ‘cooling down’ demand. With people buying less goods and services this helps to lower prices, reducing inflation.
What happens when interest rates rise?
Borrowing costs increase and therefore mortgages and loans become less affordable. If you have a variable rate or tracker mortgage then you will see an instant increase in the monthly payments you are required to make. It may also lead eventually to higher rent payments. Landlords that face higher mortgage costs themselves may start passing these on to tenants.
Why is inflation so bad?
Because consistently high levels of inflation reduce the amount we can buy, lowering our standard of living. Wages do not tend to rise as quickly as inflation – as we have seen in the public sector and the strikes this has caused. If left to settle in inflation can spiral up out of control. It is therefore taken very seriously by the Government and the Bank of England.
Will interest rate increases affect my car finance loan?
Not immediately. All car finance loans and personal loans tend to be ‘fixed rate’ these days. Over the period of the finance agreement (term) an increase in the bank rate will not change what you pay.
But it may make the finance deals available on your next car purchase less affordable. Also if your mortgage or rent increases then you may find you are struggling to afford your car finance loan. For many of us car finance is a necessary evil to ensure we can travel to work and make a living.
ake a living.
