Here we put Tesco’s loan under the spotlight to find out if the terms and conditions match the attractive headline rate.
What's the deal?
Tesco Bank has cut the rate on its personal loans to 5.2% APR, making it the cheapest on the market for sums between £7,500 and £15,000 not only now but for the past 10 years. The rate has been slashed from its previous 5.7% APR representative.
Loans can be arranged for repayment over a period of between one and five years – or even up to 10 years providing the loan is being taken for home improvements. For those looking to access the cash in a hurry, a fee of £50 can be paid to guarantee 'next day delivery'..
Tesco Bank also offers the option to apply to defer repayments on its loans for up to three months at the start of the term. However, interest is still charged during these months and, as the break is dependent upon circumstances, not all customers will qualify.
As with all financial products from Tesco, the loans aren’t available in Tesco stores – only online or over the phone.
The low rate of 5.2% isn’t guaranteed either. As it’s a representative APR, only 51% of successful applicants need to be offered this rate for Tesco to be able to advertise it as such. The actual rate you’re offered will depend upon your individual circumstances.
In fact, if you don’t have a very good credit record you’re unlikely to be offered a loan at all. Therefore, it’s worth checking your score before applying because if you’re turned down it could damage your rating further.
If there’s a chance you could want to pay off the loan early, you’ll be charged up to two months interest as a penalty.
Customers must also be over 18 and a UK resident to qualify for the loans.
What's the verdict?
Tesco Bank is now offering the cheapest rate on the market for loans between £7,500 and £15,000. But this is just the latest move in an ongoing battle between a handful of providers to offer the lowest rate at this level of lending.
But with this latest drop, Tesco has stolen the crown from Derbyshire Building Society which was previously offering the lowest rate of 5.4% APR alongside Sainsbury’s Bank, which also offers 5.4% to Nectar cardholders.
However, Tesco Bank’s loan also allows customer the option to repay sums over up to 10 years – double the timeframe offered by Sainsbury’s and Derbyshire.
However, Tesco Bank's loan also allows customer the option to repay sums over up to 10 years if the purpose of the loan is for home improvements. Aside from that the maximum term is five years, which is in line with Sainsbury’s and the Derbyshire.
This new loan rate from Tesco also shows that the supermarket giant is serious about challenging high street banking stalwarts and offering a real alternative to consumers. Tesco is expected to launch current accounts this year and if these loan rates are anything to go by, it could mean an exciting new option for people fed-up with the big banks.
While the market for loans between £7,500 and £15,000 is the cheapest it’s been for the last decade, for smaller sums the options are considerably less competitive. This means that in some cases, it could actually be better to borrow slightly more in order to pay less interest.
For instance, if you’re looking for a loan of £7,000 the cheapest rate you can get is 6.8% with peer-to-peer lender Zopa – again if you qualify. Over five years at this rate you would pay a total of £1,237 in interest.
But even if you borrowed £7,500 at 5.2% with Tesco, over the same period of time you would pay £200 less in interest at £1,009.
You can use Moneysupermarket’s loan calculator to work out how much you will pay in interest with different loan providers.
On the other hand, if you only want to borrow small sum of money, a credit card could be a better option than a loan. For instance, the leading purchase card, Tesco Clubcard credit card for purchases, offers 16 months interest-free on spending.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. We’re free, independent and compare all UK loans, as well as offering exclusive deals you can’t get anywhere else. Contact MoneySupermarket.com at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2013.