Personal loans drop below 7%

Increased competition in the personal loan market has seen the leading rate fall below the 7% barrier for the first time since June 2008, research has shown.

This year alone has seen more than half a dozen major loan providers slash the rates they offer. There are now deals at less than 8% available from eight lenders.

January and February are traditionally busy months for the personal loan market, as people take stock of their finances and often decide to take out a loan to consolidate their credit card debt.

But the battle for customers has been particularly intense this year as banks have reassessed their capital position and found they can now afford to offer unsecured borrowing again, boosting competition.

The interest charged on loans from M&S Money has been reduced from 7.5% to 6.9% for people borrowing between £7,500 and £15,000.

Rival lenders have been repeatedly undercutting one another since the start of the year in an attempt to top best-buy tables.

The personal loan market was hit hard by the credit crunch as providers struggled to raise funds for lending, while unsecured borrowing was considered riskier than secured debt, however, a number of providers who exited the market have re-entered it during the past year.

Competition has previously been limited to people borrowing larger amounts, but consumers looking to take on smaller sums of debt are now also benefiting from lower rates.

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