Personal loan market hots up

Providers including Sainsbury's Finance and Derbyshire Building Society have announced changes to rates on personal loans meaning the average rate for the top five personal loans at £7,500 now stands at 6 per cent. Today, Sainsbury's Finance reduced its rate for customers taking a loan of £7,500 over less than three years to a market leading 5.8 per cent; the lowest personal rate since November 2006, according to MoneySupermarket.com.

For anyone borrowing over a longer period than three years, the Sainsbury's Finance Personal Loan offers a rate of 5.9 per cent, matching the rate from Derbyshire Building Society. The rate on offer from Sainsbury's is only available for Nectar card holders.

Analysis by Britain's number one comparison site has found the average top 5 loan rate for borrowing £7,500 in December 2008 was 8.10 per cent costing £9,085 over the five years. In comparison, the average loan rate is now at 6.00 per cent with the loan costing £8,667- an overall saving of £418.

Tim Moss, head of loans and debt at MoneySupermarket.com, said: "The launch of the lowest personal loan rate since 2006 is great news for anyone who is looking to borrow and indicates that banks are finding an appetite for new business. With heavy competition in the savings market and margins on credit cards and mortgages tight, it appears that some banks may be refocusing their efforts on the loans market. The move by Derbyshire Building Society and Sainsbury's Finance may lead to other lenders following their lead, which will help bring down the cost of borrowing for consumers."

"Whilst, the decision to borrow should never be taken lightly; consumers needing an injection of credit should keep an eye on rates, particularly at the moment.  As well as the amount you are looking to borrow, the other key thing that affects the cost of a loan is your credit score. These low rates are only available to those with excellent credit histories. Those without excellent credit histories continue to be charged significantly higher rates of interest."