A price war among direct lenders and banks is threatening dealer profits from new car finance over the crucial September period.

The price war has been triggered by the latest cut in Bank of England base rates and fierce competition to win business from new car buyers.

Alliance & Leicester has cut the rate on its popular Car Purchase Plan, which mirrors a new car PCP package, by 1.4%. Customers borrowing between £5,000 and £12,499, with up to 60% deferred until the end of the term, now pay 9% APR. It has also cut rates on unsecured personal loans by up to 0.5%.

Barclays has launched a headline rate 7.9% personal loan for existing customers and Tesco is also offering 7.9% on loans over £15,000.