Money Insider: Cheaper loans will be good for consumers and the economy

It's not just the high street stores that are doing their utmost to encourage consumers to keep on spending via high-profile sales promotions. The banks are getting in on the act too, with new lower personal loan rates on offer as we approach the final quarter of 2012.

The Government needs the country to spend its way out of recession, but the current economic woes and prospect of more job cuts don't really provide consumers with much incentive, so news of cheaper loans will be music to the ears of the George Osborne and his Treasury colleagues.

In the past 14 days we have seen Tesco Bank, Barclays and Sainsbury's Bank all cut rates on their personal loans for sums of £7,500 and above.

With cost-of-living increases eating into consumer budgets, lenders realise that they need to offer more attractive rates to stimulate the loans market.

However, it's probably no coincidence that we're seeing more lenders starting to offer cheaper unsecured borrowing so soon after the launch of the Government's Funding for Lending scheme, and if that is one of the drivers, then it's exactly what the initiative is supposed to achieve.

It is also possible that some lenders are falling behind the annual lending targets they set themselves at the beginning of the year and are trimming rates to try to boost the take-up.

The best rates currently available are 13.9 per cent APR for £2,500 from First Direct, 7.1 per cent APR for £5,000 from Sainsbury's Finance, and 5.7 per cent APR for a £7,500 to £15,000 advance from Tesco Bank.

If you compare these rates with what was available 12 months ago, the best deals are cheaper across all amounts, with the £2,500 loan rate down 1 per cent APR, £5,000 by 0.8 per cent APR and the £10,000 loan by 0.7 per cent APR.

The 5.7 per cent APR representative rate from Tesco Bank is one of the lowest seen for more than five years, but you'll need to get your skates on of you are interested as it is a limited offer due to end on 24 September.

The biggest bugbear for borrowers is that lower interest rates are not generally available for smaller loans, so for anyone wanting to borrow between £2,000 and £3,000, the interest rate is well into double figures, and in many cases pushing 20 per cent APR.

If you're looking to borrow a smaller sum of money, then it makes financial sense to consider using a specific type of credit card, an often overlooked but cost-effective alternative.

I'm referring to the MBNA Rate for Life credit card, where the interest rate is fixed at 5.9 per cent APR for as long as it takes you to repay your borrowing and the rate is the same however much you borrow, as long as your credit rating is in good nick.

This particular credit card lets you transfer funds to your current account for a one-off 4 per cent transfer fee, and is an excellent option for those looking to borrow £5,000 or less.

For the banks, loans for smaller amounts may be considered less profitable and historically a greater risk, but if consumer spending is to start to pick up throughout the remainder of this year and into 2013, then lenders need to do their bit by being slightly less selective and offering cheaper interest rates across the board.

Close Brothers' fixed-rate savings bond is the top best buy

In a market increasingly starved of decent returns, Close Brothers Savings this week launched a market-leading, new, two-year,

fixed-rate bond paying 3.75 per cent annual equivalent rate (AER).

This is welcome news for savers because in recent months, banks and building societies have been cutting their rates. Returns have been gradually tailing off across all terms from one to five years with the average for a two-year bond falling from 3.37 per cent AER in April to just 3.06 per cent AER today.

The Premium Gold bond from Close Brothers can be opened online or by phone 020 7392 1772 with a minimum deposit of £10,000. Withdrawals are not permitted during the term of the bond, and interest is paid to your nominated bank account on the anniversary of the date the account is opened and again at maturity.

This bond is a limited offer and as with other recent best-buy fixed-rate deals is likely to be snapped up by savers desperate to lock into a competitive deal as rates across all savings products continue to decline.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk