First Direct launches best buy personal loan at 3% on £30k

First Direct has slashed the rate on its personal loan to a market-beating 3 per cent for anyone needing to borrow between £15,050 and £30,000.

Borrowers can currently find lower interest rates on amounts up to £25,000 but the HSBC-owned bank offers the cheapest deal between this amount and £30,000.

It charges 0.2 percentage points more than cheapest deal on the market (M&S Bank charges just 2.8 per cent on up to £15,0000) but First Direct allows you to borrow twice as much.

There is a catch however, to apply for ANY of the bank’s loans you must be an existing current account customer.

New kitchen? First Direct offers the best rate on larger loan brackets of up to £30,000

Borrowing the full £30,000 over a five year term with First Direct would cost you £2,311.28 in interest, that means monthly repayments of £538.52.

You can apply for the loan online and over the phone and you can choose a repayment term of between one and seven years.

It allows overpayments on your loan, but if you want to clear it completely before the end of the term you will have to pay one months’ interest on the settlement figure.

How does First Direct’s loan compare to rival deals ?

Borrowers have seen personal loan rates tumble over the last few years, as banks battled to win customers with cheaper and cheaper rates.

While competition has somewhat cooled this year as banks have reined in their lending, rates are still at all-time lows starting at just 2.8 per cent.

M&S Bank currently offers the market-beating rate on amounts between £7,500 to £15,000. It offers repayment terms of between one and seven years.

TSB Bank offers a marginally higher rate of 2.9 per cent on a bracket of up to £25,000. You can choose to repay over a term of between one and five years.

It offers two one-month repayment holidays, no early repayment charges and £50 cashback for Classic Plus current account holders.

If you want slightly more, between the £25,000 and £30,000 bracket, First Direct is the cheapest option.

Beyond £30,000 the rate shoots up to 6.7 per cent, up to the maximum £50,000.

Remember not everyone will get the headline rate. Lenders must only offer the advertised deal to 51 per cent of successful applicants.

What this means in reality is that even if you are accepted for the loan, if you don’t have a spotless credit history you will likely be charged a much higher rate of up to 21.9 per cent APR.

There are few banks offering personal loans over £25,000.

The next cheapest rate on amounts between £25,001 and £30,000 is offered by Halifax, at 5.8 per cent

But again it is reserved for existing current account customers.

Tesco Bank charges 6.7 per cent on amounts up to £40,000 repaid over up to 7 years (up to 10 years costs 9.2 per cent)

Sainsbury’s Bank charges the same 6.7 per cent rate up £40,000 if you have a Nectar loyalty card.

SHOULD YOU SIGN UP FOR A FIRST DIRECT CURRENT ACCOUNT?

To be eligible for one of First Direct’s loans, you need to hold a First Account. So is it worth opening one?

The account is one of This is Money’s top five favourite bank accounts in its own right.

The HSBC-owned bank has picked up a shelf full of customer service awards and its account comes with a decent £100 cash switching bonus and a £250 free overdraft buffer.

It also just launched a new cashback perk when you use your credit or debit card to pay with certain retailers which This is Money reviewed last week.

If you choose to switch away after the first six months and within the first year it pays you an extra £100.

This is Money’s verdict:

Larger unsecured personal loans are few and far between, so there is sadly not as much competition on rates.

It’s therefore even more crucial to make sure you think carefully about the amount you actually need to borrow as it can dramatically change the cost.

Borrowing just an extra £500 or £1,000 more could tip you into a much higher loan bracket.

For example, borrowing a total £31,000 with Halifax at a rate of 5.8 per cent would cost you £4,658.20 in interest, that’s £3,355.23 more compared to borrowing £30,000 with First Direct.

It could therefore be worth considering signing up to a First Direct current account just for the savings you could make in loan interest BUT that’s only if you have a great credit score and you think you are likely to get the top rate.

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