Best loans getting cheaper, as M&S cuts rate to 6%

A price war has erupted in the loan sector, with a new market-leading deal from M&S charging just 6%.

If it’s good enough for buses, it’s good enough for loans. You wait for one interest rate drop and then two come along at once.

Such is life in the loans market. As soon as one provider slashes their rate, a raft of discounted deals hit the sector.

So let’s take a look at the current movers, shakers and market leaders...

New rates

It’s a battle of the supermarkets at the top of the loans sector with Marks & Spencer going toe to toe with Tesco for the market-leading rate. M&S Money is currently on top after slashing its typical rate from 6.4% to 6%. Tesco Bank is hot on the provider’s tail though, after cutting its loan price from 6.4% to 6.1%.

The M&S Money deal is for a personal, unsecured loan of between £7,500 and £15,000 over 12 to 60 months (between one and five years). Tesco’s deal is for the same amounts, but is available between 12 and 120 months (one and ten years).

So if you opted for M&S and took out a £10,000 loan and paid it back over five years (with no repayment holidays) the total amount repaid (TAR) would come to £11,555.40, with monthly payments of £192.59. The same Tesco Bank loan would see you repay £11,581.80 in total with monthly payments of £193.03. That’s 44p extra per month giving an excess TAR of £26.40 over the full five years.

But these aren’t the only competitively priced loans currently on the market...

Best of the rest

The next best deal is a 6.2% rate from HSBC. The price is for loans between £7,000 and £15,000 paid back over 12 to 60 months. However to be eligible for this rate you will have to hold an HSBC current account.

Here are all the current top loan rates for £10,000 borrowed over five years – I’ve included the M&S and Tesco Bank loans so you can get an idea of the TAR variations:

*Excluding interest accumulated during optional payment holidays.

So Nationwide and Sainsbury’s Finance are further contenders with 6.4% rates. Both loans are available for amounts between £7,500 and £15,000 over 12 to 60 months. For £10,000 over five years, these loans will have a TAR of £11,661 with monthly repayments of £194.35. That’s around £80 more over the full loan term compared to M&S’s market-leading rate.

Both deals are available to new customers. However you’ll need to get hold of a Nectar card to be eligible for Sainsbury’s offering.

Reward loans

Sainsbury’s also has a reward loan up for grabs priced at 6.9% (same amount and term as the 6.4% deal). This offers a £100 gift card on application, as well as double Nectar points for two years.

However it’s certainly worth doing your maths before applying for this loan over the cheaper deal as the TAR is £132.60 more. You’ll want to be sure that the gift card as well as the bonus points will outweigh the extra interest charges.

And remember, just because the typical APR is priced at six point-something percent, you shouldn’t be positive that you’ll certainly receive that rate. Here’s why...

That’s just typical

Advertised interest rates are almost always ‘typical APRs’. This means that not everyone will receive it. In fact, the lender only has to give a typical rate to 51% of people who apply for the loan. Everyone else can potentially be issued with a higher APR.

You’ll typically be lumbered with a pricier interest rate if you’ve got a dodgy credit history. So make sure you check your record before you apply. Credit Expert offers a free 30-day trial if you sign up through lovemoney.com.

Tips for taking out a loan

And finally, if you are thinking of getting hold of a loan, take a look at these tips before you go anywhere near an application form:

Think long and hard: It sounds obvious, but before you even consider taking out a loan, you should take some time to consider whether you really, absolutely need it. Loans can be a good way of consolidating other pricey debts. However, if used inappropriately they can push you into a spiral of mega-debt.

If you’re planning a big purchase, why not give it some time, get hold of a savings account and start regularly stashing some cash. Alternatively, if you really do need to borrow some cash, why not try a 0% purchase credit card instead? Halifax currently has the market-leading deal with 15 months at 0% on both purchases and balance transfers.

But remember, if you do opt for a new flexible friend make sure you clear the balance before the 0% period runs out.

Shop around: Always do your homework when looking for a loan and check several providers. Head over to our loan calculator for a rundown of the best deals around at the moment.

Don’t securitize: Opting for a secured loan may allow you to borrow more, but you could potentially lose your house or car if you default. Not a risk worth taking in my book.

Repayment holidays: It may be tempting to take a couple of months off from repaying your debt. But ultimately repayment holidays will push up the total amount you pay back as interest will continue to accumulate throughout the break.

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