The personal loan rate war is heating up as Nationwide becomes the latest provider to go sub-5%.
Competition in the personal loans market has intensified, with Nationwide the latest lender to make a cut.
The building society has slashed the rate on its medium sized personal loans from 5.9% to 4.9%.
The new deal is available for those looking to borrow from £7,500 up to £14,999 over one to five years.
But this super low rate is only available to Nationwide current account holders and only available until the 26th of September 2013.
Rewarding existing customers
To get the cracking 4.9% rate on a Nationwide personal loan you need to either be a FlexAccount, FlexDirect or FlexPlus holder.
All three accounts get you access to Flexclusives like the new loan, which are special rates and rewards reserved exclusively for Nationwide customers. For more read Exclusive deals banks and building societies offer existing customers.
So if you want to benefit you will need to join up or else face a much worse headline rate of 6.2%.
In my opinion the best of the trio to go for is the FlexDirect account as it's fee-free, (unlike FlexPlus), comes with a 12-month interest free overdraft and you don’t need to use it as your main account to qualify for the loan (unlike the FlexAccount).
[SPOTLIGHT]However, you stand to benefit more if you switch and use FlexDirect as your main account as depositing £1,000 a month means you get paid 5% interest on in-credit balances up to £2,500 for 12 months.
How it compares
Nationwide claims it has the most competitive offer on loans of £7,500 to £14,999 lasting one to five years.
But the building society does have one other lender to contend with called Zopa.
The peer-to-peer lender is also offering a 4.9% rate on the same size loans over four to five years and an even lower 4.8% rate on short-term deals lasting one to three years.
Zopa has become a real alternaitve to the banks in recent years as it links savers wanting to earn interest directly to those looking to borrow. Rates tend to be better for both parties as there is no middle man. That does come with an added risk though. Zopa is a peer-to-peer site, and these are not yet regulated. As a result, the cash you lend through them is not protected by the Financial Services Compensation Scheme.
Our comparison centre can give you a wider view of the market of the rates on offer for loans over four to five years, but below I have listed the top five cheapest rates on offer for a loan of £10,000 taken out over five years.
|
Personal loan |
Representative APR |
Monthly repayment |
Total amount repayable |
|
4.9% |
£187.77 |
£11,266.20 |
|
|
4.9% |
£187.77 |
£11,266.20 |
|
|
5.0% |
£188.20 |
£11,292.00 |
|
|
5.0% |
£188.20 |
£11,292.00 |
|
|
5.1% |
£188.64 |
£11,318.40 |
*Must be a Nationwide current account holder
**Existing M&S customers only
If you think you can repay the loan in less time, say over one to three years, the leader board changes slightly. Here is what borrowing £10,000 looks like over three years and which lenders offer the best deals.
|
Personal loan |
Representative APR |
Monthly repayment |
Total amount repayable |
|
4.8% |
£298.35 |
£10,740.60 |
|
|
4.9% |
£298.78 |
£10,756.08 |
|
|
4.9% |
£298.78 |
£10,756.08 |
|
|
5.0% |
£299.21 |
£10,771.56 |
|
|
5.0% |
£299.21 |
£10,771.56 |
*Must be a Nationwide current account holder
**Must hold a Nectar card and have used it within the last six months
***Existing M&S customers only
As you can see Zopa is top in both categories. Paying a loan of £10,000 back over three years bags the best rate of 4.8%. The monthly repayments are dearer, but you repay less overall.
One other loan worth mentioning is the Sainsbury’s Shopper Standard Loan as it comes with a price guarantee that promises to undercut any rate you're offered on the same loan elsewhere by 0.1%. So if you applied for a Zopa loan and got approved you could in theory go to Sainsbury’s and get a 4.7% rate!
Sub-5% battle
If you're looking to borrow for home improvements or to get a new car it’s a great time to do it. That’s because lenders seem to be locked into a race to the bottom with rates on medium-sized loans.
Zopa was the first to go sub-5%, but Sainsbury's and now Nationwide have followed suit.
One thing to remember though is that these are headline rates and lenders only have to provide 51% of borrowers with the rate advertised.
So you could be one of the 49% that gets offered a worse deal. Some providers like Zopa offer a ‘soft search’ facility which won’t impact your credit history, so it won’t hurt to see if you're likely to get the top deal before looking elsewhere.
Keep up to date with the best personal loan rates with this article: The cheapest personal loans.
More on borrowing:
Credit card small print traps to avoid
Three ways to get an interest-free loan
New minimum interest rates at Funding Circle