'We've cut our rates again' boasts the latest leaflet from Tesco Personal Finance. It is the type of headline most likely to attract attention – but the rate cut is only for loans of £15,000 or over as the supermarket moves into line with Lombard and Alliance & Leicester.

It can now claim to be the cheapest in the market.

Despite some commentators worrying that people are beginning to 'over-borrow' – that is, take out more loans than they can afford – there is plenty of evidence of intense competition in the market. Headline rate cuts, increased marketing spend and more direct mail shots are all clear signs.

For the moment the loan companies will be targeting Christmas and summer holidays but they will move back into the car market in February to take advantage of the March plate change. Dealers must have their own finance packages in place by then – or risk losing more business to the high street.

NatWest is the latest bank to launch a car related deferred purchase scheme similar to a motor finance house PCP. The NatWest Car Loan Upgrade has a final lump sum payment of 30% of the initial loan after 48 months which reduces the monthly payments during the course of the term. Typical APR on an initial £8,000 loan is 12.9%.

Just as with all such bank schemes (Alliance & Leicester's car purchase plan is similar) there is no guarantee of future value and the customer has to take the risk. This is an important fundamental difference between these schemes and the same plan offered by manufacturers and dedicated motor finance houses.

Dealers should make sure they understand the differences and are able to discuss them clearly with customers who may be thinking of taking the direct loan route.