M&S Bank has slashed its personal loan rate to 2.8 per cent – the cheapest deal available.
The move brings it in line with best-buy deals already offered by Sainsbury’s Bank and TSB. However M&S offers the low rate on the longest repayment window.
Both new and existing customers can get the rate on amounts between £7,500 and £15,000 with a maximum repayment term of five years.
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The market-leading low rate would see a borrower paying a total of £718.40 in interest on a £10,000 loan, if repaid over five years.
Each lender has slightly different rules on who gets the market-leading rate.
M&S Bank offers the longest repayment term at up to seven years, without the rate changing.
The other two lenders load the rate if you need longer to repay, but if you jump through certain hoops both offer borrowers up to £19,999 at the best-buy rate.
On all amounts up to £25,000 TSB charges 2.8 per cent if you repay in under five years, but this shoots up to 10.9 per cent if you want between five and seven years.
Sainsbury’s Bank offers the deal to anyone with a Nectar loyalty card borrowing over one to three years on amounts up to £14,999.
Without a Nectar card or repaying over up to five years costs 2.9 per cent.
Borrow between £15,000 up to £19,999 and the lender will give you up to seven years to repay but it charges 2.9 per cent again unless you can repay within three years and have a one of the supermarket’s loyalty cards.
Peer-to-peer provider Ratesetter comes next in the best-buy tables charging 2.9 per cent interest followed by Zopa, Cahoot, Clydesdale Bank, Yorkshire Bank and Ikano Bank all offer the next best deal at 3 per cent.
You can read more about the best alternative deals in our regularly updated round up here.
Should you hold out for rates to go even lower?
Rates are unlikely to dip much lower, according to expert Andrew Hagger of MoneyComms.
He says: ‘I think we have pretty much bottomed out on the rate. I don’t see the day when we drop below 2.5 per cent.’
‘Rates are likely to still be at the same sort of levels at the end of this year. The market is so competitive that even if the base rate does go up it is unlikely to push up personal loan costs by a huge amount.’
There could however still be some movement on the cost of taking out a loan for a smaller amount of between £5,000 and £7,500.
This is largely because higher amounts take longer to clear, meaning lenders earn more in interest.
Borrowing below the popular £7,500-£15,000 bracket has historically come with much higher interest, and average rates sit closer to 7.4 per cent.
However borrowers have seen rates drop recently with both TSB and Sainsbury’s Bank nudging their headline deals to a best-buy 3.5 per cent.
Both offer the amount repaid over a one to five year term. However Sainsbury’s only offers the rate to those repaying over three years.
The next best deals are offered by M&S Bank and Hitachi Personal Finance, charging slightly more at 3.6 per cent.
WATCH OUT: YOU MIGHT BE OFFERED A HIGHER RATE
Financial Conduct Authority guidelines state that lenders must offer at least 51 per cent of those they accept the headline rate.
This means technically M&S must only offer its 2.8 per cent rate to just over half of successful applicants.
These will be the people they deem the lowest risk, the people with the strongest credit scores.
The remaining 49 per cent will still be offered a loan, but with steeper interest.
The actual rate you are then offered again depends on your credit report.
The higher the risk to them, according to your borrowing history, the more they will want to charge you to make taking on that risk worth it to them.
The average borrower in fact pays twice the advertised APR on personal loans, according to research carried out by The Centre for Economic and Business Research (CEBR) for Saga Money earlier this year.
In fact while the average rate on the high street was 3.5 per cent at the start of the year, according to the specialist over 50s provider, effective interest rates are typically 6.9 per cent on average.
Some lenders will disclose the alternative rates you may be offered but M&S Bank says: ‘The rate each specific customer is offered is based on their individual circumstances, which is made clear to customers when they receive their loan agreement.’
However it does offer a soft-search tool on its website, which will give you a better idea of whether you will qualify for the loan and what rate you might receive.
top personal loans
2.7% for £7.5-£25k (Nectar card deal)
Over 3 years
3% for ££15-£25k
Repay over 5 years
5.3% for £3-5K
Best deal for small amounts
2.8% for £7.5k-£15k
Top rate, repay over 7 years
6.7% for £30-50k
Largest personal loan available,