Tesco Bank has cut its personal loan rate by 0.5% to 5.2%, making it the cheapest deal on the market.Customers can now borrow between £7,500 and £15,000 at this rate for a period of 12-60 months.
This reduction makes it the cheapest loan on offer in over 10 years, according to Defaqto.
Personal loan war
Competition is fierce in this market; the Co-operative Bank has also lowered its loan rates to 5.6% from 7.9% for new customers who want a loan of between £7,500 and £14.950.
It has reduced rates to just 5.4% for those customers with an existing Privilege or Privilege Premier account.
Back in November, Derbyshire Building Society cut its rates to 5.4%, and was shortly followed by M&S Bank and Sainsbury's lowering rates to 5.5% and 5.4% respectively.
At the end of the year the AA also joined in and slashed its personal loan rate to 5.6% and 5.5% for members.
Borrowing £10,000 over five years
To get the best rate on a loan it's important to shop around and do some research first. Our comparison tables will give a full view of the market and below I've listed the top five, based on a personal loan of £10,000 taken out over a five-year period.
*A rate of 5.5% is available to AA members
Personal loan alternatives
Although the advertised rate for the Tesco loan is 5.2%, not every customer will be able to get this. Lenders only have to offer this rate to 51% of approved borrowers - the rest may be offered a higher rate. So what are your alternatives?
Balance transfer credit cards are a good way of paying off an expensive debt as they allow you an interest holiday for a certain time period. The best card from Barclaycard offers two years of 0% interest, with several others not far behind. Read The best 0% balance transfer credit cards for more.
Other loan providers, such as peer-to-peer lenders, are also worth considering. These companies, like Zopa and Funding Circle, work by matching individual lenders and borrowers together and cutting out the middle man.