A price war has broken out in the personal loan market, with the average rate on an unsecured loan of £7,500 falling to 7.89pc – the lowest level since November 2008.

However, those looking to borrow a smaller amount will not see the benefits of rate cuts as the average rate on a £3,000 loan has increased by 2.19 points to 15.12pc in the same time period, while the average cost of a £5,000 loan has increased by 1.6 percentage points, according to moneysupermarket.com.

The most competitive deals are available on loans of between £7,500 and £15,000 and eight providers have reduced their rates since December. For instance, this week Santander cut its rate from 7.8pc to 7.3pc on loans for customers using comparison sites, while Sainsbury’s Finance reduced its rate to 7.4pc and Marks & Spencer Money has launched a new loan at 7.5pc.

Tim Moss, the head of loans and debt at moneysupermarket.com, said: “With many consumers reviewing their finances in the New Year, it is great to see providers creating some healthy competition in the unsecured loans market after a period of relative inactivity.

“For those looking to borrow over £7,500 there are some excellent deals and in some cases it pays to borrow slightly more as it would cost you less overall. Unfortunately, we have yet to see rates drop as rapidly for smaller loans.”

However, Andrew Hagger, a spokesman for Moneynet.co.uk, pointed out that the rate cuts had been targeted at borrowers with existing loans.

He said: “It’s a shame that the rate cutting has, apart from Tesco, Santander and M&S Money, been targeted at existing customers only.” www.telegraph.co.uk