Company cuts rate by 0.5 percentage points, allowing it to offer customers the lowest rate on the market in a decade
Tesco Bank has entered the increasingly competitive price war between personal loan providers by slashing the rate on its loans by 0.5 percentage points – the lowest rate on the market in a decade. Customers can now borrow between £7,500 and £15,000 at 5.2%.
Customers can choose repayment periods of 12-60 months. The low rate means a £7,500 loan over 36 months would cost borrowers £8,102 in total, with monthly repayments of £225.05, while a loan of £15,000 over 60 months would result in a total cost of £17,017, with monthly repayments of £283.61.
The move comes a day after Co-operative Bank reduced rates across its range, with loans of £7,500 to £14,950 now 5.4% for existing customers (5.6% for new customers). In early November, M&S Bank slashed the rate on its personal loans by 0.3 percentage points to 5.5%, while Sainsbury’s Bank began offering a rate of 5.4% in mid-November.
Rachel Springall, finance expert at Moneyfacts.co.uk, said her organisation’s research shows that Tesco Bank’s loan rate is now the lowest it has seen in six years (as far as its electronic records date back), while Defaqto research indicates Tesco’s product has the lowest rate in the UK loans market for at least 10 years.
“Rates have really come down in the last year alone, with banks, building societies and supermarkets all slashing rates,” Springall said. “Twelve months ago the cheapest loan at the £7,500 level was Nationwide at 6%, so to come down by 0.8 percentage points is a substantial drop.
“Providers know that people who have overspent at Christmas will be looking to consolidate debt into one loan with a set repayment plan, so they are dropping rates to get the business.”
Loan providers are also facing falling demand. Figures from the British Bankers’ Association show that consumers’ appetite for loans and other forms of credit remains weak, with the trend for paying off debt continuing strongly. New spending on credit cards of £7.3bn in November 2012, for example, was offset by £7.5bn made in repayments during the month.
Tesco’s headline loan rate has to be offered to at least half of customers, though it will vary according to someone’s circumstances and how much they want to borrow. But the supermarket is also offering a two-month “payment break” at the start of the loan repayment period.
David McCreadie, managing director of banking at Tesco Bank, said: “Tesco Bank is offering the lowest personal loan rate from a UK bank in a decade because we understand that our customers are finding it challenging at the moment and are looking for ways to manage their finances carefully.”