Loan rates tumble in credit 'price war'

 
28 December 2012

A "price war" to attract personal loan customers was stepped up today, as a supermarket launched a deal with the lowest rate seen in a decade.

Tesco Bank reduced its interest rate on personal loans between £7,500 and £15,000 to 5.2% APR, which according to research from Defaqto is the lowest rate on a deal of its kind seen in around 10 years.

Rachel Springall, spokeswoman for financial information website Moneyfacts, said there has been a trend of supermarkets and building societies being particularly active in slashing their personal loan rates in recent months.

She said: "There has definitely been a recent price war on personal loan rates. M&S Bank, Sainsbury's Bank and Tesco have been taking part in much of it and the Co-operative Bank and other building societies have also been coming in."

Tesco's loan is available online or over the phone. The rate is a representative one, meaning that it has to be offered to at least half of customers and it will vary according to someone's circumstances and how much they want to borrow.

In November, M&S Bank launched a personal loan deal with the lowest rate seen in six years.

The Co-op also recently re-vamped its loan range, offering rates from 5.6% APR for new customers and from 5.4% for existing account holders on loans of £7,500 to £14,950.

Record low interest rates have helped lenders to offer some of their cheapest ever deals, but the British Bankers' Association (BBA) has said that customer demand for loans remains weak amid the uncertain economy.

The Government launched a multi-billion pound scheme to kick-start lending to households and businesses in August. Tesco has signed up to the scheme, which offers lenders access to cheap finance, but it is yet to draw funds down.

Tesco said that the new loan has come about from a desire to offer customers very competitive rates, with funding coming off the back of retail deposits.

David McCreadie, Managing Director of Banking at Tesco Bank, said: "Tesco Bank is offering the lowest personal loan rate from a UK bank in a decade because we understand that our customers are finding it challenging at the moment and are looking for ways to manage their finances carefully."

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