A pounds 5,000 loan, spread over 48 months, will cost a Direct Line client an APR of 14.8 per cent.
This compares with a 16.9 per cent APR over the same period offered by Barclays Bank, one of the insurer's closest competitors.
Potential borrowers will find that loans for smaller sums and with different repayment periods may not be quite so cheap.
For instance, a pounds 2,000 loan with Direct Line spread over two years carries an APR of 16.2 per cent.
While still very cheap, its interest rates are almost matched by Yorkshire Bank, which has an APR of 16.5 per cent over the same period. A number of other banks come in at a similar level.
First Trust Bank and Northern Bank, both based in Northern Ireland, offer their own account-holders interest rates of 12.6 per cent APR for loans of more than pounds 2,000.
Marks and Spencer, another recent entrant in the personal loans market, has APR rates that range between 17.3 and 18.2 per cent, depending on the repayment period.
To qualify for a loan from First Direct, borrowers must have renewed either their motor or household insurance with the company.
Roughly half Direct Line's 1.8 million customers are eligible to apply at present.
When they do, they are then processed through what the company describes as its 'highly sophisticated' credit assessment system, and a decision in principle is given immediately.
Jim Spowart, managing director of Direct Line's financial services arm, said: 'The launch follows a highly successful pilot to about 250,000 of our home and motor customers.
'The pilot has already generated a loan book of almost pounds 8m and is growing by well over pounds 1m a month.'
A spokeswoman for the company added: 'One of the reasons we are able to offer loans at these prices is that we have no arrears on our loan book. This allows us to keep our costs down.
'By making this offer available to those who have been with the company for a year or more, we are rewarding them for their honesty.'Reuse content