Loan charges on the slide

Fierce competition among the direct lenders means rates are starting to edge down again. Alliance & Leicester, one of the most aggressive in the market, has cut personal loan charges at two significant price points.

Loans between £5,000 and £9,999 are now charged at 10.4% - they were 10.9% - and loans above £12,500 are now at 8.9%. They were at 9.8%.

Although the monthly costs may have fallen by only a few pence, the move allows A&L to advertise a highly competitive headline rate to attract customers to the phone line. At the same time their most popular offering, around £5,000, is slightly below most direct loan rivals and well below high street bank rates.

In contrast, many dealers have pushed advertised finance rates upwards in the last couple of months to compensate for falling car prices and capitalise on the X-plate change. Little wonder then that dealers are losing finance market share to direct lenders.

The market is not going to get any easier. New entrants into personal loans are appearing all the time - with heavy hitters such as American Express now joining the fray. That can only increase competition.

At the same time, some economists are beginning to predict interest rate falls next year. The futures market in the City has already moved in anticipation of a cut by June. If true, it would be the first fall in rates for two years - good news for boosting retail confidence but making it more difficult for dealers to match the tempting loan offers in the high street.