Rates are on the rise – What does that mean for you?
Since December 2021, The Bank of England has increased their key interest rate, Bank Rate, from 0.1% to 1.25% (This has now risen again!). What will this mean to you? And what will this mean for existing and future car finance agreements?
Why are banking interest rates rising?
Many businesses have problems getting enough goods to sell. And with more buyers chasing too few goods, prices have risen for everyone. There has also been a very sharp rise in oil and gas costs – a problem made worse by Russia’s invasion of Ukraine.
One way to try to control those rising prices, or inflation in general, is for the banks to raise interest rates. This increases the cost of borrowing and encourages people to spend less. It also encourages people to save more. However, it is a tough balancing act as the banks do not want to slow the economy too much. Since the global financial crisis of 2008, UK interest rates have been at historically low levels. Last year, they were as low as 0.1%.
How does this affect car finance?
As the national interest rates increase, finance providers’ interest rates normally have to increase alongside. Car finance providers can decide if they are going to raise their own interest rates, by how much, and when. If they do, as a finance broker we are able to advise on which of our panel of lenders can give you the best deal as you can still access different rates via Magnitude without having to shop around.
We can present you with multiple options, including access to higher balloon payments (and lower monthly payments) or higher repayments with a lower interest rate – it all depends on what your requirements are. Give one of our concierge team a call to discuss your options.
If you already have a car finance agreement, the chances are that the rise in interest rates won’t affect you. Most car finance agreements are fixed rate, which means that the rate is agreed upon and fixed at the start so your monthly payment will not change. You can check this by referring to your finance agreement or if you financed with Magnitude just get in touch and we’ll be able to tell you.
If you took out a deal on a variable rate facility then you are likely to be affected. For those using a Balanced Payment scheme, your monthly payment will not change but at the end of the agreement (or if you settle early), any additional interest charges incurred will be credited to the loan.
If you are a Magnitude customer, please feel free to get in touch if you have any questions and we can help with any queries.
Future rate increases
The Bank of England said the following regarding the future of interest rates.
“We will take the actions necessary to bring inflation down to 2%. This is the target the Government has set us. Precisely where interest rates will go depends on what happens in the economy and what we think will happen to the rate of inflation over the next few years.”
“…they are not likely to reach the very high levels that some people experienced in the past.”
“We review how the economy is doing and whether a change in interest rates is needed eight times a year (roughly every six weeks).”
Do you want to fix in now?
Magnitude has the ability to refinance agreements so not only can you change to a fixed rate agreement we may be able to get you a cheaper funding solution too. Get in touch to find out and let our team advise on the options.