By Verena Vogt
Tesco Bank has cut its interest rate on personal loans between £7,500 and £15,000 to the lowest level seen in any deal of this kind in a decade.
Figures by financial research company Defaqto show that Tesco's 5.2 per cent APR deal is the lowest on personal loans in this range in around 10 years.
The deal, which is available on the internet or over the phone, is representative, which means that Tesco must offer it to a minimum of 50 per cent of customers. However, the exact rate will depend on customers' personal circumstances and the amount they plan to borrow.
According to Tesco, the record low loan was introduced because the supermarket giant wanted to be able to offer its customers very competitive rates. Funding for the move is provided by retail deposits.
The move comes in the wake of a recent trend among supermarkets and building societies to cut personal loan rates.
In November, M&S Bank began offering its customers a personal loan deal with the lowest interest rate seen since 2006, while the Co-op now offers rates on loans between £7,000 and £14,950 from 5.6 per cent APR for new customers and from 5.4 per cent for existing customers.
The cheap deals were made possible by the Bank of England's decision to keep interest rates at a record low and the coalition Government's new multi-billion pound Funding For Lending scheme aimed at kick-starting lending. Tesco has signed up to the Government's scheme but has not yet accessed any funds.
However, despite efforts to increase lending to private customers and businesses, the British Bankers' Association recently said customer demand for loans is still weak because of the ongoing economic uncertainty.