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Why do people say when interest rates are low, borrowing is cheaper?
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CreditCardChris
Posts: 344 Forumite

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?
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?
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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.
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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.
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?0 -
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.
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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.
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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.
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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.
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.0 -
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.
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.
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%.0 -
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.
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.
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%.
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.1 -
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.1 -
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.1
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