Sainsbury's joins loan rate battle
The personal loans battle continues with Sainsbury's Finance the latest lender to cut its APR. Until March 29th it is offering an APR of 6.9% (down from 7.1%).
The offer will be available to all Sainsbury's shoppers with Nectar cards on loans of between £7,500 and £14,999. Shoppers will also receive double Nectar points on their petrol and shopping for two years.
Sainsbury's follows hot on the heels of M&S Money which reduced the rates on its personal loans on 24 February. In January it cut its APR from 9.9% to 7.5% on loans between £7,500 and £15,000 but it will cut this rate again to 6.9%. This 3% reduction will save borrowers £591.48 on a five–year loan of £7,500 or £854 on a £10,000 loan.
Rates could drop further
uSwitch's consumer lending expert Michael Ossei believes that M&S Money's announcement could trigger another busy period of rate announcements from the big lenders.
He says :"Consumers came out victorious earlier this year when Santander battled it out with Nationwide, when both suppliers dropped their rates to 7.2%. [This] could signal a new attack on rates, forcing them down even lower."
Nationwide has since fractionally pushed up its rates, by 0.1% to 7.2% while Santander is currently charging 7.3%.
On top of the low rates at the higher end of the personal loan scale, small personal loan lending rates are at their lowest level since 2009. The average loan rate on £5,000 is now 10.02%, the lowest it has been since June 2009.
Tim Moss, head of loans and debt at moneysupermarket.com is glad that the personal loan market is finally opening up and thinks it's important to maintain a fair market:
"Having an open and competitive loans market is vitally important as it provides another option for consumers who may have been forced to look at other, more expensive borrowing when banks tightened up their lending criteria."
Long road ahead
Moss believes there is still a long way to go however before the loan market returns to pre-crunch levels. For example, the average loan rate on £3,000 in November 2007 was 10.6% compared to 14.39% at the moment.
Given the comparative value of higher loans he suggests anyone considering a personal loan thinks about borrowing a bit more in some cases:
"It is still cheaper to borrow more compared to lower cost loans. The other key consideration is your credit score, as this will impact the price you are likely to pay. The most competitive rates are still only available to those with excellent credit histories, while those without will continue to be charged significantly higher rates of interest."
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.