Personal Finance: Low Interest Rates Pushing Debt Levels to Record High
The level of consumers' unsecured debt has more than doubled since 1995 to reach pounds 140.1 billion at the end of last year.
The surge in borrowing has been driven by low interest rates, aggressive marketing by lenders, and people's growing willingness to take on debt, according to market analyst Datamonitor.
Unsecured consumer credit increased by 126 per cent between March 1995 and December 2001, compared with a rise of just 29 per cent in average earnings during the same period. During 2001 balances on personal loans grew by 16 per cent, while rises in credit card borrowing slowed to 11 per cent, as consumers made the most of low interest rates to consolidate their debts.
But despite falls in interest rates during last year few lenders passed the full cuts on to customers.
Datamonitor said the average rate charged on an unsecured loan of pounds 5,000 by 26 mainstream lenders was just 0.8 per cent lower in October 2001 than the same month the previous year, despite the fact that base rates had fallen by 1.5 per centage points during the period.
The group added that despite there being some exceptionally low price loans on the market, most UK consumers were still borrowing at high rates and failing to shop around for the best deal. …