Banks do us a favour? Loans get cheaper

When banks start being nice to borrowers, it is usually time to get suspicious. But if you want to borrow cash to buy that must-have item of homeware from the sales, it seems that interest rates for personal loans are now at their lowest since 2008.

Deals abound in the £7,500 to £15,000 range, according to Tim Moss, head of loans at comparison site Moneysupermarket.com. But that comes with a crucial warning. "Banks are looking for ways to make a profit, and there are few opportunities in the savings market, so they are making a push on loans," he says.

Banks don’t offer loans for fun: even at the current, historically low rates, they are an expensive route to a new kitchen or car. The current market leader is Alliance & Leicester, charging 7.2 per cent for a £10,000 loan for five years, and Santander and Nationwide who both demand 7.3 per cent.

Sainsbury’s charges 8.5 per cent for a £5,000 loan, at Alliance & Leicester it’s 8.6 per cent and Tesco 8.7 per cent. Tesco will lend up to seven years, but the rest of the providers go up to five.

Would-be borrowers should calculate the compound interest payments before taking the plunge. Banks may make it sound easy but it is all down to your credit rating.

"Before the credit crunch, banks looked for reasons to accept you, now they look for reasons to turn you down." says Moss. "Even a missed mobile phone bill payment can be seen as a reason to refuse a loan."

Look at your credit record before you apply for credit. "It’s like sitting an exam - why wouldn’t you want to see the answers beforehand?," says Moss. "If any details are wrong, issue a note of correction before applying for credit."

And don’t be loyal to your bank, they aren’t loyal to you - this especially applies to the big banks. "Just because Barry has been your bank manager for 15 years doesn’t mean he’ll offer you a loan," says Moss. "Nowadays, banks don’t care about the fact that you’ve given them your business, they just look at the cold, hard numbers."

Shop around for the best deal and forget your bank manager, he’s forgotten you.