British households are taking on new debt at a frenzied pace not seen for more than a decade, new figures reveal.

Loans for new cars made up the bulk of new borrowing, but a growing appetite for cheap cash through personal loans also drove up debt.

The annual growth rate of consumer credit hit 9.3 per cent in February, the highest pace since December 2005, the Bank of England’s latest credit conditions survey revealed.

Households in general are able to stomach higher debt levels, thanks to a record-high employment rate and low interest rates, which keep the burden of servicing debts affordable.

However as interest rates start to rise or if a turn in the state of the economy leaves higher numbers out of work, high levels of debt could become more of a concern.

Credit card, personal loan and car finance borrowing are all increasing at a rising pace, according to the Bank of England

What are we spending it all on?

Basically, cars. The number of new cars bought with cash borrowed at dealerships surged above one million in the past year.

In excess of £28billion was borrowed – more than twice as much as just four years earlier.

Car sales on finance have never been this high – they rose by 22 per cent in just one year alone.

The popularity has increased thanks in part to cheaper loans to purchase new vehicles.

Rising numbers of households are also taking advantage of record low rates to take out personal loans. These are often used for home improvements, as well as major purchases or debt consolidation.

Personal loan rates have fallen markedly over recent years, with supermarkets offering particularly low rates.

The average rate on a £10,000 personal loan is now at a record low of 4.3 per cent – or 3.43 if taken out from a supermarket.

Britons are buying cars on finance in record numbers, the latest figures reveal

Easier to buy: Car sales bought with loans are driving up debt levels across the UK, the Bank of England said

Credit scoring criteria has loosened in 11 of the past 12 quarters, which means a higher number of households now have access to cheap cash.

The Bank of England said the increase in non-credit card loans is likely to reflect ‘both an increase in demand from borrowers and an increase in supply from credit providers’.

Credit card borrowing has also increased, although not to the same extent. Rates have remained broadly stable over the past three months, the Bank of England said, although lenders are fighting to offer potential borrowers better offers in other ways, such as longer interest-free periods or lower balance transfer fees.

Personal loan rates have been falling in recent months, making it even cheaper for households to borrow

It has become easier for borrowers to get hold of loans in recent months, while demand for loans is also rising, the Bank of England report shows

How much do we owe?

As of February, households owed £63.3billion on credit cards and £115.3billion in other loans excluding mortgages. However this level is likely to have risen even further since.

Borrowing has been boosted by low interest rates, which has brought the cost of personal loans to record lows.

Increased consumer confidence thanks to high employment rates, modest increases in pay and lower prices at the petrol pumps and supermarket check outs has also boosted households’ willingness to spend.

Millions have been able to gorge themselves on cheap money thanks to low interest rates, but as soon as the Bank of England starts to raise rates again from the rock-bottom 0.5 per cent where the base rate has sat since March 2009 many could run into trouble.

What will happen next?

Borrowing is expected to continue to rise this year in the same way as last, the Bank of England report suggests.

The big question is how sustainable it is for households to continue to borrow this level of debt.

The Bank of England has been keen to play down fears that the economic recovery is built on growing levels of debt, but has warned that levels remain ‘elevated’, and that indebted households remain more vulnerable.

The first graph shows that although borrowing is rising, it is still nowhere near pre-crash levels. However this is not an ideal benchmark as at this time debt was incredibly cheap and banks at times seemingly falling over themselves to offer credit cards.

The Office for Budget Responsibility expects household debt to rise as a proportion of income

The proportion of income that households are putting away each month is on the decline, the OBR found

High levels of debt also make it harder for the Bank to raise interest rates, because households could start to struggle as the cost of servicing debts rises.

This applies not just to unsecured borrowing but to mortgage debts as well.

Governor Mark Carney has said in the past that the concern is not that households would stop paying their mortgages and other debts, but that covering these costs would eat a greater proportion of people’s disposable incomes leaving them with less to spend elsewhere.

Figures from the OBR show that a strong contributor to economic growth is ‘private consumption’.