Loan Rates are Falling

M&S recently slashed its personal loan rates by a massive 5%. Loans between £5,000 and £7,499 that were priced at 12.9% (over 12-60 months) now have a rate of just 7.3%.

Yet, while the rate reduction may be considerable, the move barely raised eyebrows. That’s because M&S is just the latest in a long line of lenders to slash their rates, following the likes of Sainsbury’s, Clydesdale and Tesco.

Indeed, there hasn’t been a better time to take out a loan since halcyon pre-credit crunch days.

How does M&S’s rate cut compare to other supermarkets?

M&S was actually slow off the mark when it came to cutting its rates. Its contemporaries, Sainbury’s Bank and Tesco Bank, had already made cuts. However the move does put M&S in a very competitive position.

For example, should you want to borrow £5,000 over three years you’d pay £563.44 in interest at M&S’s 7.3%, with monthly repayments of £154.54. The next best rate comes from Sainsbury’s at 7.5% meaning over the three-year period you’d pay £578.92 in interest with monthly repayments of £154.97.

Trailing a little behind is Tesco with a rate of 7.8% on which you’d pay £637.24 in interest over the term of the loan, with monthly repayments of £156.59.

Why are loan rates coming down?

The simple answer is competition. Supermarket lenders are slowly starting to establish themselves as big players in the financial world. Each of them is fighting it out to be top dog. And with fewer lenders than there used to be, the bigger, more established lenders can’t afford to leave the supermarket crowd to fight it out amongst themselves; they want to get involved, too. As such, the battle for the best rate has begun.

How does overpaying on a loan affect you?

With personal loans you are able to make overpayments whenever you like at no cost to you. However, should you want to repay the loan in full you could face an early repayment charge (ERC) which could be as much as two months interest. Looking at the figures above you could be paying over £300 just to repay your loan. When you take out a loan always check what the small print says about ERCs.


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