A New Year ‘rate war’ has broken out in the personal loans market, benefiting anyone with a good credit history looking for a personal loan. That’s the view of the Daily Telegraph who report that lenders are scrambling to offer the lowest loan deals in an attempt to attract new business.
Rate war brings down the cost of borrowing
Nationwide has this week cut its personal loan rate for its current account customers to a typical 7.2% APR, claiming that this was ‘the UK’s lowest personal loan rate’. The deal is available for loans of up to five years between £7,500 and £14,999.
However, in response, Santander then cut its personal loan rate to match the Nationwide offer. Whilst the rate can only be accessed through price comparison websites, Santander are also offering 7.2% APR on loans between £7,500 and £14,950.
Several other lenders including First Direct, Tesco, Marks and Spencer, HSBC and Barclays have also cut their personal loan rates over recent weeks. The best rates are generally only available for ‘large loans’ (over £7,000) and in some cases you do have to be an existing customer of the bank to apply.
Rates on smaller loans can be much higher
Whilst this rate war is dragging down the cost of borrowing for larger loans, consumers looking for small loans may still be paying double digit interest rates. The Daily Telegraph reports that borrowers looking for a loan for a smaller amount will generally pay much higher rates. For example, the typical rate for a £2,000 loan with Santander is 18.9% APR whilst it is 19.9% at online bank Smile.
Money expert Andrew Hagger told the newspaper: “Smaller loans may be considered less profitable and a greater risk; however, if consumer spending is to remain strong despite the VAT hike, then lenders need to do their bit by trimming the cost of borrowing across the board.”
