How To Prepare For An Interest Rate Rise And How It Is Likely To Affect You:
With 2022 causing energy bills to go up, food prices to skyrocket and interest rates to go up we have put together this guide that will help you work out what this means for you financially.
This guide will help you if you are thinking about securing a loan, if you currently have a mortgage or you are just interested to know how an interest rate works and what is likely to happen as it rises.
We will walk you through what an interest rate rise can affect and then we will walk you through a few tips that will help you if you are anxious about the rises.
What does an interest rate rise effect?
You will find that when the interest rates rise, they can have a huge impact on a wide area of services. This of course will affect loan rates, another large area that this affects our mortgages, and it can also have a huge impact on any pensions and savings that you have.
You will normally see the interest rate is affected by the Bank of England bank rate, this is also referred to as a “base rate” and at the time of writing it is currently 1%.
What does an interest rate rise mean?
All this means is that the bank rate is going to rise. As the banks borrow from the Bank of England it means that the rate that they are charging the banks to borrow has gone up, this in turn will translate back to the general public with their bank services. This of course is very simplified that gives you an idea of exactly what it means.
What does it mean for borrowing money?
With the interest rate going up it means that any borrowing which is secured or unsecured could be affected by the interest rate. You need to check the terms and conditions if you already have loans in place as you may find that credit cards and overdrafts can go up in the amount that they are charging.
One of the things that you can do is have a look through any loans or overdrafts that you currently have and make sure that you can afford the repayments and if there are any changes. You may be able to swap the owed amount over to a better rate, we recommend using a comparison site for this and it will give you the best way to pre-empt some of the rates that are available.
You will find that most loans such as a personal loan which are unsecured will normally not be affected, this is normally because you will have already agreed to a fixed rate of interest which means that it is not a variable rate and will not increase or decrease.
What does it mean for mortgages?
This is why an interest rate rise can really affect mortgages. If you are currently on a variable rate, with the interest rate rising it will cause your mortgage to go up. Even if you are on a fixed rate, you will normally find that the percentage goes up anyway. This means that you will more than likely have to pay more per month for your mortgage during times when the bank rate is higher.
The best thing that you can do here is to contact your mortgage lender directly and get in touch with an adviser to see the best rates that are available for you and then you will be able to make a decision on what is available. It can get difficult, as another thing that tends to happen is that the lenders get stricter with mortgages.
However, we would say to contact your mortgage lender directly to make sure that you are getting the best possible option. This is especially true if you are in a variable mortgage as if you leave this it will most likely go up quite sharply.
Will credit card repayments go up due to an interest rate increase?
If you have a credit card or an overdraft then you will most likely see that the interest rate goes up, this can affect the amount that you are charged for the money that you have loaned. If it is an overdraft, you will commonly see that the monthly charge in order to secure the overdraft will go up. If it is a credit card you will normally notice this go up as well.
One of the things that you can do straightaway to save yourself some money, if you are able is to cancel the credit card and repay the outstanding balance within sixty days. This will cause you to pay interest, but you will normally find that you pay at the lower rate.
If you are unable to pay the full balance, then we highly recommend having a good look at what you owe and making sure that you are just to meet payments, so you are not stretched financially.
How does interest rates affect a pension or savings?
This is where the good news comes in, you will normally find that when interest rates go up you will get a better rate for your savings. As they are able to charge a higher rate on lending, you will normally find that this is reversed with your savings and banks normally compete with each other to try and get people using them for their savings.
So, if you currently have savings then this is a great time to take advantage of the best rate.
The best thing that you can do to pre-empt an interest rate rise is to make sure that you plan accordingly. You will find that if any rates are going up you should be notified well in advance to make sure that you are in line with their terms.
We recommend contacting any establishment where you have borrowed money directly and seeing if you are on the best rate. This of course will not work for an overdraft payment but if you have a mortgage and you are looking to get the very best rate, sometimes you will be able to get a better deal if you have been with the same mortgage company for a number of years.
We also recommend checking out a good comparison website, this will help with the mortgages if you don’t get any joy going directly. The other thing that you can do is check out credit card rates that are available across the board and in most cases, you will be able to move the balance across to another lender.
Of course, depending on the interest rates you may find that there are not any particular good offers across-the-board so in that case we recommend planning appropriately and making sure that you are not stretching yourself financially.
With borrowing money, you can still do this of course but we do recommend that you have a very thorough think about the money that you need to borrow and if you can borrow it on a shorter term then you will normally find that this is best when you are going through a time of higher interest rates.
We hope this is helped you understand interest rates and the rises expected in 2022.
If you are interested in using MoneyPig, to see how much you could borrow for a small personal loan click the link below and go straight through to our application page.
We will be able to give you a quick decision and, in most cases, you will be able to get the money quickly and easily within a few days.
Thanks for reading, if there is one piece of advice that you get from this article make sure that you plan appropriately for your finances and don’t leave yourself in any financial difficulty.
Although an interest rate rise can be annoying for anything other than a savings account it can also be planned and when the interest rates come back down you can find yourself in a far better spot.