Money Talks: Low personal loan rates another incentive to carry on spending

The government may be hoping the country will spend its way out of recession, but the current economic turbulence and prospect of more job cuts doesn’t give consumers confidence to borrow for major purchases, so lower loan rates will surely be welcomed by Chancellor George Osborne & Co.

It is also likely that some banks are falling behind the lending targets they set themselves at the beginning of the year and are trimming their lowest rates to boost the take-up. In the last few weeks, Tesco Bank, HSBC and Nationwide Building Society have all slashed interest rates on personal loans.

The best rates available at the time of going to press are 14.9 per cent APR for £2,500 from the Post Office; 7.9 per cent APR for £5,000 from Sainsbury’s Finance and 6.4 per cent APR for £10,000 from HSBC, Marks & Spencer Money and Nationwide.

Rates can vary markedly – shop around and you could save a couple of hundred pounds over the borrowing term.

However, lower interest rates are not generally available for smaller amounts, so for anyone looking to borrow around £2,000-£3,000, the interest rate will be well into double figures and in some cases pushing 20 per cent APR.

A cheaper alternative is to opt for plastic with a 0 per cent promotional deal on purchases, such as the 15 months interest-free offer with the clubcard from Tesco Bank or MasterCard from M&S Money.

Or make your purchase by credit card and then switch it to a 0 per cent balance transfer deal – Bank of Scotland and Barclaycard are both offering 0 per cent for 22 months, subject to a one-off transfer fee.

Smaller loans may be considered less profitable and historically a greater risk, but if consumer spending is to remain strong throughout the remainder of this year then lenders need to stop cherry-picking and offer cheaper interest rates across the board.

• Andrew Hagger is head of communications at Moneynet.co.uk