WONGA may have been attracting criticism this week, but for those prepared to resist the lure of payday lenders it has rarely been a cheaper time to borrow money.

Loans of £10,000 are now available for as little as 4.1 per cent, which is over a third cheaper than three years ago. Several lenders such as M&S Bank and Clydesdale Bank are boasting of their "lowest ever" loan rates.

If you have an existing, more expensive loan taken out a couple of years ago, it may even pay you to switch. But you may get a better deal from a credit union than a high street lender.

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According to M&S Bank, the top three reasons for people taking out loans are for home improvements, new car purchases and debt consolidation. Holidays and weddings also feature on the list.

M&S Bank is offering loans of between £7,500 and £15,000 at an exclusive rate of 4.1 per cent to its existing current account, credit card and loan customers. New customers will be charged 4.2 per cent for loans of the same value.

According to Rachel Springall of Moneyfacts, it was M&S which kicked off the "loan rate war" two years ago when it dropped its advertised rate to 6 per cent and competition has been continuing ever since. She says "It wouldn't be surprising to see loan rates breach the 4 per cent mark in the coming weeks as lenders compete to be the top of the charts for borrowers looking to consolidate their debts."

Sainsbury's Bank, which is currently running a rate sale (until 3pm on Monday) is offering personal loans starting from 4.2 per cent. It has highlighted the possibility of switching loan providers to save money. It believes many people who have taken out loans in the last few years could cut their outgoings by taking out a cheaper loan today and using it to pay off their previous loan.

Its research indicates that there is a lack of awareness about switching. Among the people it surveyed, two-thirds said they did not know they were allowed to 'switch' a personal loan to another provider before the end of the loan term.

Under the Consumer Credit Directive, anyone with an unsecured loan has the option of early settlement, allowing the possibility of transferring from one provider to another. Early repayment charges are capped at two months' (58 days') interest. In the final year of a loan, early repayment penalties cannot exceed 0.5 per cent of the amount being repaid early and in the first year of a loan the early repayment penalty cannot exceed 1per cent of the amount being repaid.

However, switching may not be as straightforward as it sounds. The lowest interest rates are only available to those with the best credit records. Lenders are only obliged to give 51per cent of successful applicants the advertised rate.

Another factor is the size of the loan, as the outstanding balance on your loan may not qualify for the best rates - nearly all lenders charge higher rates of interest on lower amounts.

For a £5,000 loan, for example, Clydesdale, M&S and Sainsbury's charge between 5.4 per cent and 5.6 per cent. After that, rates increase in leaps and bounds. At Clydesdale, the rate jumps to 17.9 per cent for loans of between £3,000 and £5,000, while Sainsbury's charges 12.2 per cent for a £3,000 loan and 18.4 per cent for less.

To help people work out whether they could save money by moving their loan, Sainsbury provides a "switch and save" calculator on its website.

However, the stiff credit scoring applied by high street lenders can also mean that potential borrowers are either turned down or offered a loan at a higher rate of interest than that which has been advertised. Relatively small misdemeanours, such as late payment of a credit card bill, can blot your credit rating.

You may get a better reception from a credit union. Their rates are not as low for larger loans as the cheapest on the high street, but they can be cheaper for smaller amounts. They are also more flexible and you can request a loan even if you are not an existing member.

Scotwest, for example, will consider requests for loans from non-members providing they subsequently become members with a £1 contribution. It charges 6.5 per cent for loans of £10,000 to £20,000, 7.5 per cent for amounts of £5,000 to £9,999 and 12.7 per cent for loans of £501 to £4,999.

Scotwest's chief executive Kenny MacLeod says: "We are responsible lenders so we won't lend money to people if we think they can't afford to repay it.

"We check borrowers' credit records through Experian but unlike the high street lenders we do not make our decision on the basis of a credit score alone. We look at people's income and expenditure, we talk to them."

Scotwest also has no early repayment penalties if people want to pay off their loan quicker than originally agreed.

Earlier this year, Halifax became the first mainstream lender to introduce a similar arrangement. Its Clarity Loan offers customers the ability to make additional payments and repay their loan early at any time without incurring any additional interest.