The Bank of England has been cutting its base rate gradually since August 2024, after holding it at a 16-year high of 5.25% through much of 2023. As of early 2025, the rate stood at 4.5%. That matters to anyone thinking about borrowing this tax year, because it feeds into the rates lenders charge on personal loans, mortgages and credit cards.
What has changed?
- The Bank of England base rate peaked at 5.25% in August 2023, the highest level since 2008.
- The Monetary Policy Committee (MPC) began cutting from August 2024. By February 2025, the rate had fallen to 4.5%.
- Despite the cuts, personal loan rates available to borrowers remain materially higher than the low-rate environment of 2020 to 2022, when some representative APRs on unsecured loans were below 3%.
- The FCA requires lenders to show a representative APR on all credit advertisements. At least 51% of successful applicants must receive that rate or better.
Why it matters
The monthly payment on a loan can look manageable. The total amount repayable over the full term often tells a different story.
For example: a £5,000 personal loan at a representative APR of 9.9% over three years has a total repayable of roughly £5,800. The same loan at 15.9% APR would cost closer to £6,400 in total. That is a difference of around £600 for the same amount borrowed over the same period.
The rate you are actually offered depends on your credit history, income, existing debts and the lender's own criteria. The representative APR in an advert is not a guarantee of the rate you will receive.
Who may be affected?
- Anyone planning to take out a personal loan this tax year (2025/26).
- Borrowers on variable-rate products, such as some credit cards and overdrafts, who will see their costs shift in line with the base rate.
- People who borrowed at higher rates in 2022 or 2023 and are considering whether early repayment makes sense. An early repayment charge may apply, so it is worth checking your agreement first.
- First-time borrowers who have not compared the total amount repayable across different loan offers.
At the time of writing, the MPC's next rate decisions are scheduled for 2025. Further cuts have been discussed by some analysts but are not confirmed. Rates could move in either direction depending on inflation data and broader economic conditions.
What to read next
For a full explanation of how loan interest works and what to check before you apply, see our guides:
You can also use the loan repayment calculator to work out total cost at different rates and terms before you commit.
Sources
- Bank of England, base rate history and Monetary Policy Committee decisions.
- FCA, rules on representative APR in credit advertising.
- MoneyHelper, guidance on borrowing and understanding loan costs.