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

[Deleted User]

CreditCardChris said:

Rates should be given to people based on their credit history

Your wish has been granted as they already are..

Now how good does that feel? What a result!

enthusiasticsaver

Borrowing is cheaper when interest rates are lower.  The rates offered by lenders is not dictated by the BOE rate.  Often it does follow, particularly if it goes up but as the rate is practically zero now (to help the government who are now borrowing shed loads of money) there is no way lenders will lend at that rate, regardless of your financial situation.  I would think the lowest is around 4% so if you have been offered that I should count yourself lucky or not borrow. Borrowing rates are set according to supply and demand and they also build in an element of bad debt to cover themselves in case people default. 

benbay001

You seem to have based your whole inequality arguement upon rich people being offered much lower rates. Have you got any evidence for that?
2% is perfectly doable for the average Joe, as long as you have an asset to secure the loan against.

CreditCardChris

benbay001 said:

You seem to have based your whole inequality arguement upon rich people being offered much lower rates. Have you got any evidence for that?
2% is perfectly doable for the average Joe, as long as you have an asset to secure the loan against.

Well I'm not a home owner so I don't.
And yes I do have evidence because the government are lowering interest rates to encourage borrowing but if the rates being offered by banks to everybody are the same as they were 6 months ago then how is this encouraging people to borrow? Unless the people they really want to encourage to borrow are the rich, so it's obvious the rich are the ones being offered the ~1% rates while the normal people are still being offered ~4%.

The truth is banks don't want normal people to take advantage of low interest rates because god forbid that might mean we can buy things "on the cheap", they just want the rich to borrow because its a system for the rich by the rich it seems.

I'm not just making all this up by the way, I watched a mini documentary about how banks offer their best clients rock bottom interest rates, basically force feeding them credit. Meanwhile if the average Joe with perfect credit history and responsible spending habits wants to buy a home or a new car they have to accept 3% - 4% interest rates... 

For example

Nebulous2

You’re saying the best you can get is 4% and then show a quote for a fraction under 3. Ignoring the base rate, that is remarkably good in historic terms. If a bank can borrow at 0.1%, pay their staff, buildings, computers, payment network, advertising costs, cover bad debts and make a profit on less than 3% they are doing very well and so are you. 

What you have to remember is that while one of these costs - the base rate - has gone down, others will have gone up. Paying and setting up staff to work from home, social distancing measures in branches, increased call centre staff and most importantly a higher level of bad debt mean we are still very fortunate that rates are as low as they are. 

TimSynths

Nebulous2 said:

You’re saying the best you can get is 4% and then show a quote for a fraction under 3. Ignoring the base rate, that is remarkably good in historic terms. If a bank can borrow at 0.1%, pay their staff, buildings, computers, payment network, advertising costs, cover bad debts and make a profit on less than 3% they are doing very well and so are you. 

What you have to remember is that while one of these costs - the base rate - has gone down, others will have gone up. Paying and setting up staff to work from home, social distancing measures in branches, increased call centre staff and most importantly a higher level of bad debt mean we are still very fortunate that rates are as low as they are. 

Totally. 25,000 laptops purchased since March, chairs and monitors supplied to those who need them to work from home, offices running @ 1/3 capacity to allow for social distancing, offices closed at a moments notice for 48 hours to allow for deep cleaning when covid cases are suspected. Staff on full pay but only working 1/2 to 2/3 of their hours to allow for social distancing. Branches only open for 4 hours a day, reduced opening times in contact centres as so many staff off self isolating or caring for others, unable to meet the previous opening hours staffing commitments, calls to these centres up 100's of % over normal. Profits down 95%, share price collapsed. Yes- borrowing has never been so cheap all things considered.