Uncompetitive Personal Loans From Big Banks

Four times as many personal loan providers are offering rates below six per cent compared with last year – except for the big banks.

Some 13 lenders are offering personal loans at six per cent APR or less while the big five banks are failing to match the competition online and in-branch, according to price comparison site uSwitch.com.

New provider Zopa has broken a record by offering a rate of 4.5 per cent on loans of £4,000 over a three year term, while Direct Line and Northern Rock are offering 5.6 per cent and MoneyBack Bank's rate is set at 5.7 per cent.

"For anyone considering taking out a personal loan – to consolidate existing expensive debts, to buy a new car or finance a home improvement – now really is a good time to utilise such low rates of interest," said Nick White, head of personal finance at uSwitch.com.

However, big banks HSBC, Barclays, the Royal Bank of Scotland, NatWest and Lloyds have much higher and uncompetitive rates ranging from 6.4 per cent (Lloyds) to 11.9 per cent (HSBC) – double many other lenders.

An HSBC loan of £8,000 over four years would cost a borrower £1,000 more in interest than an identical loan from Northern Rock (at 5.6 per cent).

uSwitch.com predicts loan rates will stay low in the short term but may start to creep up as the industry starts to increase Payment Protection Insurance rates.