Tesco ramp up the personal loan price war

The reluctant price war over personal loan rates could be about to warm up after Tesco Bank reduced its rates for customers borrowing between £7,500 and £15,000.

At 5.7 per cent APR representative, down from 5.9 per cent, this is the lowest rate since the credit crunch took hold five years ago and is available until midnight on Monday 24 September online or over the phone.

Savings rates have been slashed by an average of 3.28 per cent as the Bank of England base rate plummeted to 0.5 per cent from 5.25 per cent following the collapse of Northern Rock in September 2007.

But personal loan rates have remained stubbornly high, according to MoneySupermarket.com. Someone borrowing £5,000 on a personal loan will now pay an average of 0.94 percentage points more than they did in 2007. Overdraft rates have also increased from 17.81 per cent in 2007 to 19.53 per cent now, so the average cost of a £1,000 overdraft has increased from £178.10 in interest over a year, to £195.30.

The most competitive rates are still reserved for applicants with a faultless credit history. Those with a less than perfect record are likely to to struggle for cheap borrowing for some time yet.