Play the field on personal loan rates

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The Independent Online

The UK personal loan market has popped and fizzed recently, with rates dipping as low as 5.7 per cent.

The Bank of England base rate has been held at 4.75 per cent for eight months, and that has allowed lenders to sharpen their competitive edge with rock bottom annual percentage rates (APRs). Among these are Northern Rock's 5.7 per cent deal and online offers from Churchill and Direct Line (5.9 per cent).

Not everyone will qualify since many of these deals require the applicant to have a decent credit score, but their popularity has shaken up the big four high street banks. Last week, for example, HSBC launched a "fire sale" with 40 per cent off the cost of a personal loan.

The reduction applies to loans over £7,000, now offered at a typical APR of 6.9. Until now, customers have had to pay between 8.9 and 11.9 per cent.

Financial analyst Moneyfacts says that while the bank is offering its customers a better deal, it has some way to go. A £7,500 HSBC loan over five years will still cost £15.64 a month more than the cheapest loan on the market.

However, Moneyfacts adds, HSBC's 6.9 deal at least gives it a better showing than some of its high street rivals. While not quite as cheap as Lloyds-TSB on the same £7,500 loan (6.4 per cent), it puts NatWest (9.9 per cent) and Barclays (14.9 per cent) in the shade.

Still, you'd do better to shop around, with 20 deals cheaper than HSBC's, says Richard Mason from the price-comparison service moneysupermarket.com.

Other lenders will offer you a fixed rate rather than one influenced by your perceived credit risk. These include Nationwide and Goldfish.

Don't take out expensive loan insurance (PPI) unnecessarily. With loan rates below 6 per cent, providers are under pressure to make profits elsewhere. "PPI is an obvious source," says Mr Mason. This carries payout exclusions and could be surplus to income protection already offered by your employer.

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