Personal loan offers lowest rate

A building society that was rescued by Nationwide in 2008 has stepped up competition in the personal loans market by launching a product with the lowest rate seen since the credit crunch started.

Derbyshire Building Society has cut its personal loan rate to 5.8% APR, the lowest rate the Nationwide Group has ever offered. The society merged with Nationwide four years ago, when it turned to the giant mutual for shelter from financial difficulties after racking up losses in the first half of 2008.

Its new rate is available to people applying to the Derbyshire online for loans of between £7,500 and £14,999 for a term of up to five years. The 5.8% deal is a representative rate, which means that more than half of successful applicants will receive the interest rate advertised.

The rate the borrower ends up being offered will depend on their personal circumstances, meaning some people are likely to end up paying a higher rate. Customers will pay one fixed rate for the term of the loan.

Consumer help website Moneyfacts said the new rate made the deal the new market leader for loans of £10,000 over five years. Moneyfacts spokeswoman Charlotte Nelson said: "The last time Moneyfacts saw a loan rate at 5.8% or lower was February 2007."

The deal comes at a time when lending studies have tended to show people have been acting cautiously and trying to pay down their debts rather than taking out new loans amid the uncertain economy. Household budgets remain under intense pressure due to high living costs, high unemployment and low wage increases.

More than three years of the Bank of England base rate being held at a record low has helped lenders to offer cheaper deals to borrowers, as financial institutions use this to help decide the rates they offer to consumers. However, savers have also seen rates plummet and lenders have been toughening up their borrowing criteria amid the uncertain economy.

The Bank of England and the Treasury recently launched an £80 billion "funding for lending" scheme in a bid to unclog the flow of credit.

A spokeswoman for the building society said that the new rate had been introduced in reaction to some competitors re-pricing their deals.

Paul Wootton, Nationwide's head of personal loans, said: "Since its launch earlier this year the Derbyshire personal loan has been a regular feature in best buy tables. The new market-leading rate of 5.8% APR representative is the lowest rate ever offered by the society."