Life After Cheap Money: What Higher Interest Rates Mean When Your Credit Isn’t Perfect
For more than thirteen years, borrowing in Britain was unusually cheap. The Bank of England cut its base rate to 0.5 per cent in March 2009 in the wake of the financial crisis, and it stayed below 1 per cent until the spring of 2022, dipping as low as 0.1 per cent during the pandemic. A whole generation of adults took out their first credit card, car finance deal or personal loan in that period without ever experiencing anything else. Then inflation surged, and the Bank raised rates fourteen times in a row, reaching 5.25 per cent in August 2023. Rates have come down since, but at 3.75 per cent, where the Bank held them in September 2026, they remain far above the levels many people had come to think of as normal. For anyone borrowing with a less-than-perfect credit history, it is worth understanding what that shift really means.
How the Base Rate Reaches a Personal Loan
Most personal loans in the UK come with a fixed interest rate, so a change in the base rate won’t alter the repayments on a loan you already have. Where it matters is in the price of new borrowing. Lenders fund their loans through deposits, wholesale markets or investors, and when the base rate rises, that funding costs them more, which tends to push up the rates they offer. When the base rate falls, the effect usually works in reverse, although it can take time to filter through and is rarely passed on in full. Because the rate on a new loan is fixed at the point you sign, timing can make a modest difference when rates are moving, although it is rarely worth rushing into borrowing just to get ahead of a possible change.
For borrowers with poor credit, though, the base rate is only one part of the price and often not the biggest part. Lenders set rates according to risk, and a missed payment, a default or a thin credit history all increase the likelihood, in the lender’s eyes, that a loan won’t be repaid. That risk element can be many times larger than the base rate itself, which is why someone with a strong credit record and someone with a damaged one can be offered very different rates on the same day by the same lender. It is also why the advertised representative APR may not be what you are offered. UK rules only require that at least 51 per cent of successful applicants receive that rate or lower, so the rest may be offered something higher.
The Squeeze on Affordability
Higher interest rates have also changed the picture in a less obvious way, through affordability. Lenders are required to check that you can repay a loan without undue difficulty, and that check looks at what is left after your existing commitments. For many households, those commitments have grown considerably. People who remortgaged when their fixed deals ended have often seen their monthly payments rise sharply, rents have climbed in many parts of the country, and other credit has become more expensive too. Someone earning exactly what they earned in 2021 may now have far less spare money each month, and that alone can mean a smaller loan, a higher rate or a declined application.
Lenders themselves have become more cautious in some parts of the market, tightening their criteria when the economic outlook looked uncertain. That doesn’t mean borrowing with bad credit has become impossible. Specialist lenders that work with people whose credit history is imperfect, such as Evlo Loans, continue to lend where the numbers add up, placing weight on current income and spending as well as past records. Some lenders also make greater use of Open Banking data, which shows your actual income and spending rather than relying on estimates, and for borrowers whose credit file undersells how well they manage money, that can work in their favour. What it does mean is that the margin for error is smaller, and applications that might have scraped through in the cheap money years now need to stand up on their own.
Borrowing Sensibly When Money Isn’t Cheap
The most important habit in a higher rate world is looking at the total cost of borrowing rather than the monthly payment. Stretching a loan over a longer term can make repayments look manageable, but it usually means paying considerably more interest overall. Comparing the total amount repayable across a few options, rather than just the headline rate, gives a much clearer picture of what a loan really costs. It is also worth thinking carefully about whether the borrowing is essential, or whether waiting and saving for a few months would avoid the cost altogether.
There are practical steps that can improve your position before you apply. Checking your credit file with Experian, Equifax and TransUnion lets you spot and correct errors that might be costing you. Using eligibility checkers that rely on soft searches helps you avoid a string of hard searches, which can make lenders more wary. Paying down existing balances where you can, even modestly, improves the affordability picture and can make the difference between a decline and an offer. If you are considering a debt consolidation loan, make sure the new loan genuinely reduces the total you will pay, not just the number of payments you have to make.
The era of cheap money is unlikely to return any time soon, and that is something to plan around rather than wait out. Higher rates make every borrowing decision matter a little more, especially when your credit history already counts against you. The upside is that a careful, well-prepared application, made for a genuine need and sized to what your budget can comfortably bear, still stands a reasonable chance. Understanding how rates, risk and affordability fit together puts you in a much stronger position to make that decision well.