Money stockYet another supermarket price war has broken out this month. However, this one is being waged over personal loans, rather than sliced bread or baked beans!

Just before 2012 ended, Tesco fired the first shots in this new loan war by reducing its loan interest rates to as little as 5.2% APR for five-year loans of between £7,500 and £15,000. This rock-bottom rate didn't top the best buys tables for long, as Clydesdale and Yorkshire banks dropped their rates to 5.1%.


Now rival supermarket Sainsbury's has got involved, dropping its rates to 5.1% and 5.2% respectively, depending on the term of the loan.

Here are Sainsbury's Bank's new ultra-low rates:

Loan type

Amount

Term

APR

Standard Nectar Cardholder

£7,500-15,000

One-three years

5.1%

Standard Nectar Cardholder

£7,500-15,000

Four-five years

5.2%


Let's see just how these rates compare for loans of £10,000.

Three years
Loan Representative APR Total amount repayable Monthly payment
Sainsbury's Bank Standard Nectar Cardholder Loan 5.1% £10,787.04 £299.64
Clydesdale Bank Online Personal Loan 5.1% £10,787.04 £299.64
Yorkshire Bank Personal Loan 5.1% £10,787.04 £299.64
Tesco Bank Personal Loan 5.2% £10,802.52 £300.07
Derbyshire BS Personal Loan 5.4% £10,833.48 £300.93

So Sainsbury's now shares top spot with Clydesdale and Yorkshire, though there's not a huge amount between the top five deals.

Five years
Loan Representative APR Total amount repayable Monthly payment
Clydesdale Bank Online Personal Loan 5.1% £11,318.40 £188.64
Yorkshire Bank Personal Loan 5.1% £11,318.40 £188.64
Sainsbury's Bank Standard Nectar Cardholder Loan 5.2% £11,344.80 £189.08
Tesco Bank Personal Loan 5.2% £11,344.80 £189.08
Derbyshire BS Personal Loan 5.4% £11,397.60 £189.96

So once you're borrowing over a longer term Sainsbury's drop back from being a market leader, though it's a very respectably option, costing less than an extra 50p a month compared to the top deals.

Ten steps to perfect personal loans
With supermarkets, banks and building societies practically cutting each other's throats to win new borrowers, there's rarely been a better time to borrow cheaply. Here are some tips to enable you to find your perfect personal loan:

Go online
To find the lowest loan rates and monthly repayments, always compare loans online.

Typical APRs
The rates shown in comparison tables are 'typical' rates. This means that they must be offered to at least half of successful applicants. Your loan rate will depend on your personal circumstances and how much you wish to borrow.

Don't buy PPI
Until a couple of years ago, lenders would desperately try to include rip-off PPI (payment protection insurance) within your loan. This cover is expensive, clumsy and riddled with exclusions, so don't buy it.

Read How to claim your PPI compensation if you think you've been mis-sold PPI in the past.

Borrow only what you need
If you need to borrow, say, £5,550, then borrow just that amount and no more. Don't be tempted to round up your loan to the nearest thousand pounds. This will almost always increase your interest bill and monthly repayments (unless the rate is substantially lower for the next tier of borrowing).

Longer loans cost more
Try to borrow over the shortest period possible, as lengthening a loan's life pushes up your interest bill. The golden rule is to pay off debt as quickly as possible and not over prolonged periods.

Don't put your home at risk
A mortgage is secured against your home, so failing to pay it could mean losing the roof over your head. Always check to make sure that your loan is unsecured and, therefore, doesn't put your home on the line.

Always compare TARs
Although APRs are a reasonable benchmark for comparing loans, there is a better one. This is the TAR, or Total Amount Repayable. When weighing up loans, always compare the TARs and find the lowest TAR for the loan you're after.

Get in a fix
Although the vast majority of personal loans offer fixed rates, a few do charge variable rates. With rates plumbing record lows, make sure that your cheap rate is fixed for the entire life of your loan.

Find hidden fees
Do watch out for hidden fees that bump the cost of loans, such as arrangement fees, transfer charges or cheque delivery costs. Choose carefully to avoid paying these unnecessary fees.



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