Business - Finance
The new year has heralded new lending rate increase which is positive or bad news depending on your financial standing. As the rate of inflation rises, the Bank of England has been forced to raise the base rate by a quarter of a percentage. This was unanticipated, as rates were raised at least once towards the end of last year. It seems that made no impact on borrowing - especially home loan lending - and spending and therefore inflation thus the need for a second rate hike in such a short while.
This unanticipated rate rise is welcome news for savers with money in the bank, chiefly those with index-linked accounts such as ISAs and TESSAS. Index-linked savings accounts yield the most when rates increase. The disadvantage here, as expected manifests when rates are lowered. With this latter raise, some of the rates on offer and indeed good, some nearly 10% for high rate taxpayers and up to 8% for base rate taxpayers. Saving in ISAs are tax-free and you get to save a fixed amount every year. Interest is added each month depending on the prevailing rate. The more income is added each year, the more return on savings the account holder receives. Needless to say,Ordinary savings accounts have also benefited from this rate rise but not as much as their index-linked counterparts. An average of 0.10% to 0.55% has been added by banks to their rates.
Although, increasing interest rates has positive points - such as cooling the economy - , it is more of bad news than positive news for the average credit consumer. Some businesses have not fared well over Christmas, with consumers less willing to overspend. Bankruptcies have also increased as inflation rates combined with a variety of factors have forced small businesses out of the market. Business receivership is dwarfed by the number of personal insolvencies. Ending up bankrupt can cause untold amount of stress both for businesses and individuals. Even when the difficult period seems to be all over, a record of it is available on your credit report for seven years or more. This means that during this period, most major lenders will decline giving you any credit including mortgage leaving you to the mercy of loan sharks. Even low interest credit cards can prove elusive.
Good credit repair advice can help curing a bad credit history, should you happen to be in this situation to enable you to borrow at lower rates in the future. In short, legal credit repair can take a while. There are immediate things that can be done to improve credit history, such as avoiding late payment, honoring all your bills on time and many more. Bottom line is that, you have to build trust so that future lenders can risk their money on you. Advice dished during this period include not borrowing at all this time, nevertheless, that may not be the right thing to do as it can result in no credit history for that period. The ideal solution is to borrow small manageable amounts and make payment on time when the bill is due. Ensure the lender reports to credit bureaus so that gradually, your credit history will improve.
To conclude, while interest rates increase may be beneficial to savers, generally they affect borrowers in a negative way and the consequences can reverberate in future months and years, both in people's personal lives and businesses.
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