Banks and other direct lenders have started to move interest rates down again after a couple of months of relatively minor adjustments. They are confident there will be further base rate cuts in the medium term and that rates will remain low over the term of a typical car loan, around three years.

The Abbey National is pushing its personal loans hard with 1.7% coming off the £5,000 to £10,000 band, dropping the APR to 10.2%. There is a competitive 8.8% available at £10,000 and above, with a further 1% cut (down to 7.7% APR) if customers apply over the internet.

The bank claims the new rates are the lowest it has ever offered and among the best available. We were unable to find anything cheaper though Tesco does come close. Its promoted rate of 8.2% is only available on loans of £15,000 or above over five years and most high borrowing car loan customers would pay around 8.6%.

Alliance & Leicester, always competitive in the car loan market, has reacted by widening its most popular rate band with a 9.5% offering from £5,000 to £12,499. However, it has raised its large loan rate (£12,500 and above) to 9.2% from 8.9% to compensate.

The trend towards offering a 1% discount for internet applications is growing. Marks & Spencer Financial Services has the offer running at present, though its rates do not look particularly competitive.

* RAC: first three months' payments deferred