Why do people say when interest rates are low, borrowing is cheaper?

CreditCardChris

I looked at getting a loan when the BoE interest rate was 0.75% and the lenders were charging ~4%. Now the BoE base rate is 0.1%, a reduction of 85% yet when I search for loans they're still wanting ~4% interest? Same for mortgages by the way.

When people say borrowing is cheaper, do they mean for billionaires / companies and not everyday citizens? Yet another example of the mega rich benefiting from a !!!!!! economy. An economy could be booming or it could be burning to the ground around us and the mega rich would still benefit from it... When exactly do all these incentives trickle down to us peasants?

[Deleted User]

People say that when interest rates are low, borrowing is cheaper, because when interest rates are high, borrowing IS cheaper, as you pay less in interest.

Interest rates reflect the cost of borrowing, the increased risk and tightened lending criteria.  When interest rates are higher, borrowing becomes more expensive.

CreditCardChris

Deleted_User said:

People say that when interest rates are low, borrowing is cheaper, because when interest rates are high, borrowing IS cheaper, as you pay less in interest.

Interest rates reflect the cost of borrowing, the increased risk and tightened lending criteria.  When interest rates are higher, borrowing becomes more expensive.

What? Did you even read my post? 

I know borrowing is meant to be cheaper when interest rates are low but I just told you the interest rate me (a normal everyday person) is being offered is still the same as it was when the BoE rate was 0.75%. So the interest rate has been lowered from 0.75% to 0.1% yet the interest rates banks are offering has not been lowered, ergo borrowing is NOT cheaper, it's the same. 

That's why I'm asking if it's only billionaires and companies who get offered lower interest rates while normal people still have to pay the same rates as before?

[Deleted User]

Yes, I read your post. It was very good. 

Borrowing is not cheaper because the interest rates are not lower.  You explained that yourself in your post.  If the rates don't change, borrowing cannot be cheaper.

I then explained that the rate you are offered is driven by cost and risk.  If you think BoE rate is the sole determinant of the rate you are offered as a consumer, you're not paying attention.

CreditCardChris

Deleted_User said:

Yes, I read your post. It was very good. 

Borrowing is not cheaper because the interest rates are not lower.  You explained that yourself in your post.  If the rates don't change, borrowing cannot be cheaper.

I then explained that the rate you are offered is driven by cost and risk.  If you think BoE rate is the sole determinant of the rate you are offered as a consumer, you're not paying attention.

OK thank you for clarifying. So what you're essentially saying is what I suspected, it's only the mega rich who get offered lower rates as everyday normal people still carry the same level of risk as they did 6 months ago. A system for the rich, by the rich. 

[Deleted User]

Rather a system for the lender, by the lender. 

Everyday normal people carry a much higher level of risk than before. As indeed, do many of the rich and companies.

You may have seen some of the reports on employment and the economy on the news. It seems there is something of a bug going around that has impacted a lot of people.

[Deleted User]

CreditCardChris said:

I've used a market comparison tool and I'm still being offered the same rates as 6 months ago. Also worth mentioning I have perfect history, good employment, above average salary yada yada it counts for nothing. 

If it counts for nothing, then that means you must be being offered around 12-15% on loans and 39.9% or above on cards, as higher risk customers would.  Have you checked your files to see why you're getting such high rates?

Or are you just pretending that it counts for nothing and actually getting loan rate around 4-5%, which is what the lower risk end gets? In which case, your better history counts for something.

CreditCardChris

Deleted_User said:

CreditCardChris said:

I've used a market comparison tool and I'm still being offered the same rates as 6 months ago. Also worth mentioning I have perfect history, good employment, above average salary yada yada it counts for nothing. 

If it counts for nothing, then that means you must be being offered around 12-15% on loans and 39.9% or above on cards, as higher risk customers would.  Have you checked your files to see why you're getting such high rates?

Or are you just pretending that it counts for nothing and actually getting loan rate around 4-5%, which is what the lower risk end gets? In which case, your better history counts for something.

The rates I'm being offered on loans and mortgages is ~4% but considering the BoE base rate is 0.1% I still feel like I'm being ripped off. I just don't like the idea that the only people considered trustworthy enough for very low 1% - 2% rates are the mega rich. 

Rates should be given to people based on their credit history, not how much money they have in the bank because even companies or the mega rich can sometimes default on loans. Anyways my question has been answered so I guess ~4% is the best rate a normal person can ever hope to get, even if rates went to -2% or something they'd still only offer us 4%.

jjames1985

CreditCardChris said:

Deleted_User said:

CreditCardChris said:

I've used a market comparison tool and I'm still being offered the same rates as 6 months ago. Also worth mentioning I have perfect history, good employment, above average salary yada yada it counts for nothing. 

If it counts for nothing, then that means you must be being offered around 12-15% on loans and 39.9% or above on cards, as higher risk customers would.  Have you checked your files to see why you're getting such high rates?

Or are you just pretending that it counts for nothing and actually getting loan rate around 4-5%, which is what the lower risk end gets? In which case, your better history counts for something.

The rates I'm being offered on loans and mortgages is ~4% but considering the BoE base rate is 0.1% I still feel like I'm being ripped off. I just don't like the idea that the only people considered trustworthy enough for very low 1% - 2% rates are the mega rich. 

Rates should be given to people based on their credit history, not how much money they have in the bank because even companies or the mega rich can sometimes default on loans. Anyways my question has been answered so I guess ~4% is the best rate a normal person can ever hope to get, even if rates went to -2% or something they'd still only offer us 4%.

rates are based on risk.  someone who has money in the bank is a much lower risk than someone who hasn't.

besides, if you're being offered rates of 4% on a mortgage you're much higher rishk than you think you are.  4% is a terrible rate.

Thrugelmir

CreditCardChris said:

Deleted_User said:

Yes, I read your post. It was very good. 

Borrowing is not cheaper because the interest rates are not lower.  You explained that yourself in your post.  If the rates don't change, borrowing cannot be cheaper.

I then explained that the rate you are offered is driven by cost and risk.  If you think BoE rate is the sole determinant of the rate you are offered as a consumer, you're not paying attention.

OK thank you for clarifying. So what you're essentially saying is what I suspected, it's only the mega rich who get offered lower rates as everyday normal people still carry the same level of risk as they did 6 months ago. A system for the rich, by the rich. 

Mega rich are unlikely to bother with mortgages and personal loans. 

trex227

The way I see it is past a certain point the BoE rate going lower doesn’t affect the interest rate on products. So rather than hitting a ceiling we’re at the floor level of interest rates. The banks overheads for staff, infrastructure etc are not reduced by interest rate reductions. As zx81 says banks will see risk as having increased so are factoring this in, with their overheads and the profit they expect to make and so the % being offered on the product hasn’t changed.