In the last two weeks we have seen six big financial brands cut the interest rate on their personal loan products. The rate cuts have all been targeted at larger loans (above £7,000) with reductions ranging from 0.1% to 2.4%, leaving the best buy product currently with Sainsbury's Finance at 7.4% APR.
The biggest rate cut announced so far of 2.4% by M&S Money will save the consumer £522 on a 5 year loan of £7500 or £695 on a five year loan of £10,000.
It's welcome news for customers to see loan rates falling at long last and from some of the largest providers in the market. It's a shame that the rate cutting has, apart from Tesco and M&S Money, been targeted at existing customers only.
The other downside is that lower interest rates are not on offer for smaller borrowings, so for anyone looking to borrow a sum of say £2,000 to £3,000, the interest rate will be well into double figures and in some cases pushing 20% APR.
Examples:
- Smile - Personal Loan £2,000 charged at 19.9% APR
- Santander - Personal Loan £2,000 charged at 18.9% APR
- Tesco - Personal Loan £3,000 charged at 15.9% APR
Smaller loans may be considered less profitable and a greater risk, however if consumer spending is to remain strong despite the VAT hike, then lenders need to do their bit by trimming the cost of borrowing across the board.
DETAIL OF RATE CUTS
- Sainsbury's Personal Finance rate cut from 7.7% APR to 7.4% APR - (-0.3%) Loans £7.5k to £15k - Nectar card holders only
- HSBC rate cut from 7.6% APR to 7.5% APR (-0.1%) Loans £7k to £25k - existing customers only
- Tesco Bank rate cut from 7.9% APR to 7.6% APR (-0.3%) Loans £7.5k to £15k for new and existing customers Rate cut to 7.5% APR for existing Tesco loan customers
- First Direct rate cut from 8.9% APR to 7.5% APR (-1.4%) Loans £7k to £15k for existing customers only
- Barclays Barclayloan Plus rate cut from 10.9% APR to 9.9% APR (-1.0%) for existing customers only
- Marks & Spencer Money rate cut from 9.9% APR to 7.5% APR (-2.4%) - Loans £7.5k to £15k from 6 Jan 2011
