Supermarkets and banks battle to offer lowest loan rates

Both Sainsbury's and Tesco have cut their personal loan rates to compete with the banks.

There's a personal loan price war going on as banks and supermarkets slash their rates to try to attract more customers.

So now's a great time to borrow if you need a larger sum of money and you can pay it back comfortably.

Let's take a look at the lowest rates.

Medium loans

First Direct is currently offering a rate of 3.6% on medium sized loans paid off over one to seven years, but the deal is reserved for 1st Account holders. And if your main current account is with Nationwide, you can also take advantage of a loan rate of 3.6%.

Sainsbury’s Bank is also offering the same 3.6% rate in this range but only over a shorter term of one to three years. If you need between four and five years the rate rises to 3.7%.

Here are the best buys using the example of borrowing £10,000 over five years.

*Available to 1st Account customers only

**Available to Nationwide main current account customers only

***Exclusive rate for comparison websites

***Available to HSBC current account customers only

Small loans (£5,000-£7,499)

The smallest loans on offer, of between £5,000 and £7,499, are also the most expensive, although rates have now fallen below 5%.

Here are the best buys using the example of £5,000 repaid over five years.

*Available to 123 and Select customers only

**Available to 1st Account customers only

***Exclusive rate for comparison websites

Large loans (more than £15,000)

Peer-to-peer website Zopa is the no-strings market leader here with a rate of 3.7%.

Or there's First Direct, but you need to be a 1st Account customer to be in with a chance of its 3.6% loan. Having said that, the account is one of the best out there in terms of customer service and also offers a £100 joining bonus.

Here are the best rates you can find on a loan of £17,500, taken out over a five-year term.

*Available to 1st Account customers only

**Available to 123 and Select customers only

***Exclusive rate for comparison websites

****Available to existing customers only

Larger loans (more than £25,000)

Sainsbury's Bank is the only provider to offer personal loans over £25,000 to both new and existing customers.

The Sainsbury’s Bank Standard Loan is available on borrowing between £25,001 and £35,000 at a rate of 6.9% APR when taken out over two to five years. Those with a Nectar card can get access to a lower rate of 6.8% APR if they are prepared to borrow over two to three years.

No other personal loan provider offers loans above £25,000, apart from Barclays.

Barclays offers personal loans of up to £50,000, but only to existing customers who hold a current account, savings account, Barclaycard or mortgage product.

The bank has a representative APR of 6.9% on loans from £15,100 up to £25,000 and 7.9% on loans from £25,100 to £50,000.

Not for everyone

All of the loans in the above tables offer attractive rates but not everyone will be offered loans at these rates. Lenders are only obliged to offer their best rates to 51% of successful applicants.

If you have a history of borrowing money and then paying off your debts on schedule, there’s a good chance that you’ll be able to borrow at a decent rate. But if you’ve never borrowed money before or you’ve been late with repayments, you may not be able to get the best deals.

Personal loan alternatives

It’s also possible that you may be able to borrow even more cheaply.

If you have an excellent credit rating, you may be able to get a 0% new purchase credit card. With one of these cards you can make a big purchase and not pay any interest on the resulting debt for as long as 23 months.

The Santander 123 credit card is the market leader, but charges an annual fee of £24, while the current fee-free market leaders here are the Halifax Purchase credit card, the Clydesdale Bank Gold MasterCard and the Yorkshire Bank Gold MasterCard.

Let us imagine you want to buy some new furniture for £1,500. If you use these cards for the purchase, you won’t have to pay any interest for at least a year and a half. That’s as long as you make your minimum repayments each month.

Just remember that you may be offered a fairly low credit limit – if you’re only offered a £2,000 credit limit, you may want to go for a personal loan where you can borrow more.

Compare 0% credit cards

Do you need to borrow?

Whatever kind of loan you go for, first ask yourself first whether you actually need to borrow the money. Even if you’re paying a super-low interest rate, you’re still giving up money on interest payments which you’ll never see again.

The prudent approach is to cut your spending and build up your savings, if you can. If you follow that approach you’ll be richer in the long-run.

But if you’re determined to borrow, a personal loan may well be the best option for you.

Compare personal loan rates