Rate war spreads to smaller personal loans

Anyone looking to take out an unsecured personal loan will benefit from a resurgence in the loans market, which has seen average rates across all lending amounts drop for the first time this year, according to analysis by moneysupermarket.com.

Although rates for loans above £7,500 have been falling steadily since the start of the year, anyone looking to borrow less than this amount was still paying much more. The average rate for the top 10 personal loans at £3,000 is now 14.39 per cent, the lowest average since November 2009. The average rate for loans at £5,000 is now 10.02 per cent, the lowest rate since June 2009.

Despite rates falling, they are still some way off the pre-credit crunch levels, with those looking for smaller loans still paying much higher rates than in November 2007. The average loan rate on £3K loans in November 2007 was 10.6 per cent - 3.79 per cent lower than current rates, and £5K loans 7.41 per cent - 2.61 per cent lower.

Loans at £7,500 and above are still benefiting from a price war with M&S Money tomorrow launching a new personal loan rate of 6.9 per cent, the lowest headline rate on the market since June 2008.

Tim Moss, head of loans and debt at moneysupermarket.com, said: "At long last, after a period of inactivity, we are starting to see the whole personal loan market starting to open up. Many lenders are beginning to open their books to more consumers and we are seeing more competitive deals, even for loans below £7,500.

"Having an open and competitive loans market is vitally important as it provides another option for consumers who may have been forced to look at other, more expensive borrowing when banks tightened up their lending criteria. However, there is still a long way to go before we see the loans market return to normality. The recent trends with falling rates are encouraging; although it is unlikely we will see rates fall back to the pre-credit crunch levels.

"Anyone looking for a personal loan should still consider borrowing a little more in some instances as it is still cheaper to borrow more compared to lower cost loans. The other key consideration is your credit score, as this will impact the price you are likely to pay. The most competitive rates are still only available to those with excellent credit histories, while those without will continue to be charged significantly higher rates of interest."