Tesco has broken clear of the rest of the banks and direct lenders with a new range of ultra-low personal loans available through its website.

Although leaflets in the stores boast a lowest rate of 8.2% APR, web visitors are being offered 7.9% on loans over £15,000. On a more typical £5,000 car loan, Tesco is 0.4% cheaper than Alliance & Leicester – usually one of the most aggressive operators in the market.

In reality the monthly payments barely differ but the ability to be able to promote the cheapest rate in the market is important when customers are becoming so adept at shopping around. Therefore, although bank base rates are stable and may even rise in the medium term, we would expect direct lenders to move down to meet the Tesco challenge.

They will all want to capture a larger share of the new and used car sales market in September and there is increasing emphasis on specific car loan products – often with an element of deferred payment to match carmaker PCP schemes and reduce monthly costs.

Although banks cannot offer guaranteed final values, these payment plans are still an attractive proposition to many customers.