A price war between personal loan companies is driving down the costs of borrowing, benefiting consumers looking for low rate loans.  The Financial Times reports that despite the Bank of England Base rate being on hold since March 2009, banks and building societies are continuing to lower the rates on their personal loans in an attempt to attract new business.

Nationwide rates return to 2006 levels

The FT reports that Nationwide is the latest lender to cut its personal loan rate, with applicants now able to borrow up to £15,000 at a rate of just 6.6 per cent.  This brings Nationwide’s lending rate back in line with pre ‘credit crunch’ rates from late 2006.

This effectively makes borrowing cheaper than it has been in some years.   The consumer price index (CPI) is currently running at 4.5 per cent while in October 2006, the last time Nationwide offered a loan rate of 6.6 per cent, CPI was 3 per cent.

The FT says that ‘the spending power of cash is decreasing faster now – reducing the value of outstanding debt, assuming a borrower’s income rises alongside prices.  At the same time, the lower rates of interest charged provide a further benefit to borrowers.’

Price war reducing cost of personal loans

Alliance and Leicester’s recent decision to cut its loan rate to 6.7 per cent was the catalyst for Nationwide to slash its loan rate to 2006 levels.  Other lenders offer similar rates, including Marks and Spencer (6.9 per cent) and Sainsbury’s (6.8 per cent).

The Nationwide rate is, however, only available to FlexAccount holders who use their account for their main banking.  Non Nationwide current account customers will be offered a rate of 6.7 per cent, and new laws mean only just over half of applicants have to be offered this rate.

The low loan rates are also only generally available for loans of between £7,500 and £15,000.  For example, if you want to borrow £4,000 with Sainsbury’s, the rate of interest jumps to 12.8 per cent.