Interest high in cheap personal loans

This week two major lenders lowered the interest rates on their personal loans, stepping up the rates war in the market.

Ten personal loan providers now charge less than six per cent in interest, as competition between providers steps up a gear.

"These rate cuts firmly indicate a renaissance in the personal loans market, with renewed competition stirring it back to life. In this environment of lowering interest rates, if consumers are looking to borrow, apply for a loan, or consolidate debts, now is the time to do it cheaply," said Stuart Glendinning, director of personal loans at price comparison website moneysupermarket.com.

This week alone Abbey and Northern Rock lowered the interest they charge to 5.7 per cent and 5.6 per cent respectively - making them among the cheapest deals on the market.

Michael Johnson, Abbey's director of banking, commented on Monday: "We are keen to offer customers a good deal even when they're not borrowing a huge sum of money. In offering our lowest rates on loans as small as £5,000, this will enable people to get affordable loans for smaller purchases or projects without paying high interest rates."

Moneysupermarket's Mr Glendinning noted: "Abbey has reduced its rate twice in the last few weeks; first from 6.4 per cent (online loan) to 5.9 per cent APR, and down to 5.7 per cent APR yesterday. In addition, A&L recently launched a new Moneybank Bank loan with an attractive headline rate of 5.7 per cent APR."

But moneysupermarket points to Northern Rock's reduction as leading the way.

"The most eye-catching change is from Northern Rock who has cut its rate to 5.6 per cent APR, offering the lowest deal in the market," Mr Glendinning observed.

And while all the competition is definitely good news for customers, he also had a warning for the unwary as while the rates look attractive, they might not be open to all.

"Consumers need to be mindful that higher bad debt provisions made by the banks and thus, more stringent underwriting, means that customers with an excellent credit profile are likely to benefit the most. Other customers with a slightly poorer profile may find it more difficult to achieve market-leading loans now, than would have been the case 12 months ago."