Competition sees loan rates falling

Personal loan rates are continuing to come down from their five-year high as competition returns to the market.

The average interest rate being charged by the 10 most competitive lenders has fallen on loans for people borrowing 5,000 or more, as banks and building societies regain their appetite to lend, according to website moneysupermarket.com

But eight out of the top 10 providers with the best rates now employ so-called personal pricing, under which the interest they charge varies according to the borrower's credit rating.

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Despite the Bank of England base rate being cut to a record low of 0.5 per cent in March 2009, the average cost of a personal loan has actually been steadily increasing.

The rates lenders were charging peaked in April this year, but they have been falling since then.

Moneysupermarket said a number of leading loan providers, including Nationwide, Tesco and Sainsbury's Finance, had all recently cut their rates, as competition returned to the market.

The biggest fall has been for people borrowing 5,000, with the average rate charged on the 10 most competitive deals dropping by 0.58 per cent since April to 10.19 per cent. There has also been a 0.3 per cent fall in typical rates on 15,000 loans.