UK interest rates have risen – what should I do?

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Consumer expert Martyn James offers advice to people on overdrafts, loans and credit cards as interest rates rise in the UK

Knowing how all of this will affect you personally is difficult to calculate, especially if you have a loan, mortgage or credit. Mortgage rates are too volatile to predict right now. The best advice if you haven’t confirmed a new rate is to keep the fire going and see what happens when things stabilize. Speak to a professional broker who can walk you through all the options and address what the future may hold.

But with other forms of lending and credit, here’s my advice…

Overdrafts, Loans and Credits

Many people have become permanently stuck in their overdrafts over the years. Being an “overdraft prisoner” can be an expensive business, as many banks now charge you complicated fees for using your agreed overdraft facility on a daily basis.

This means that the longer you are in an agreed overdraft facility, the more you pay – and before you exceed the limit. In fact, getting stuck in overdraft is one of the most expensive ways to “borrow” money.

Banks have a duty to help you if you say they’re in financial trouble, and the regulator has given them far-reaching instructions to do so. It’s possible that if you give up the overdraft, they’ll turn your overdraft into a low or even interest-free loan. You can then pay the money back at a rate you can afford.

loans and credit agreements

A conventional credit or loan agreement should not be swayed by the current chaos in the financial markets. However, it is becoming more expensive to borrow money. You can expect new lending rates and lending prices to rise. However, borrowers need to be careful.

Do you remember payday loans? The industry collapsed after (justified) negative publicity about the often appalling standards of lending and outrageous interest rates. Though most companies have gone out of business, the industry has slowly slipped under the radar again, offering loans that run from three months to a few years instead of the single month associated with payday loans.

Be careful though as interest rates are still very, very high. October is traditionally a month when people start borrowing to pay for Christmas. Do not use high-interest, short-term loans or other forms of borrowing to do this. Focus on cutting your bills and avoid buying now and paying later when you shop, which only pushes the debt further down.

credit cards

Credit card interest rates may fluctuate throughout the agreement. So keep in mind that the Bank of England rate hike will likely affect any funds you owe or borrow on the card going forward.

Here are options for people worried about not being able to pay off the debt with a higher interest rate. Under the Consumer Credit Act, lenders must give you 30 days’ notice before the rate increase occurs. You then have 60 days to decline the plan if you are not satisfied.

In this case, your card will be closed and the money will become refundable. However, this triggers a process where the card issuer must allow you to pay the money back in a “reasonable” time and at a rate you can afford. So have the details of your finances ready so you can explain what is really affordable for you.

Some lenders don’t offer the best repayment rates. So if you still can’t afford the debt, file a complaint and contact the free Financial Ombudsman. You may also be able to transfer the debt to an interest-free credit card, but this incurs a fee and you need to be disciplined about repaying it.

Martyn James is a leading consumer rights activist, television and radio broadcaster and journalist.

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