Loyalty, but only up to a point for borrowers

Sainsbury's and Tesco may no longer offer savers market-leading rates, but do they - and some of the other supermarkets - give a good deal to borrowers?

The main attraction for customers of Budgens, Morrisons, Sainsbury and Tesco is that taking out your favourite supermarket's credit card increases the number of loyalty points you earn if you use the card to pay for your shopping.

This is also true of the Advantage Visa card recently issued by their high-street rival in toiletries and drugs, Boots.

But for people running a debt, there is no attraction in a Budgens card, since it offers no introductory incentives and standard rates (see table on page 4) that are higher than those charged by some high street banks.

The Morrisons credit card does at least offer better rates to new customers, but they could hardly be described as competitive.

Only Boots can match the zero per cent that is charged on new purchases by Capital One Bank (0800 952 5252) and Egg (www.egg.com). But for debt transfers, the cards from Boots, Sainsbury and Tesco offer better rates than the 7.9 per cent charged by Capital One.

The Boots Advantage Visa, even beats the 2.5 per cent charged by Egg (which 'powers' the Boots card) for balances transferred within six months of the card being issued. Sainsbury's introductory rate of 7.5 per cent for cash withdrawals looks good compared with other supermarket cards - and it's likely to be cheaper than withdrawing cash on a bank overdraft.

But even lower teaser rates for cash are available from the Halifax (0800 389 6000), Lombard Direct (0800 215 000) and Nationwide (0500 302 011).

Tesco may have lost ground to more competitive credit card rivals, but where personal loans are concerned it is up there with the market leaders.

According to Moneyfacts, on a £5,000 loan repaid over three years, its monthly repayment of £161.13 without creditor insurance is second only to the £159.05 a month that the same loan would cost with Northern Rock (0845 605 0808). For more details of Tesco loans, call 0845 600 6016 or go to www.tesco.com/finance.

With a monthly figure of £162.25, the total cost of a loan from Sainsbury is 40 more than the one from Tesco, enough to keep it out of the Moneyfacts best buys. Sainsbury is more competitive than the first retailer-led financial institution, Marks & Spencer Financial Services, where a similar loan costs £166.53 a month.

However, once you include the cost of insurance in the loan repayments, neither Sainsbury's nor Tesco offers particularly good deals.

And in charging £182.11 and £181.21 a month respectively, they are more expensive than the £169.95 from Intelligent Finance (0845 609 4343) which over the life of the loan makes a difference of at least £400.

In comparison with the 7.74 per cent standard variable rate (SVR) that a lot of high-street lenders charge mortgage customers, Sainsbury's SVR of 6.95 per cent on its flexible Options Mortgage (0500 700 600) is a good deal.

But even with the discounted rate of 5.95 per cent for the first six months of a new loan, the Sainsbury's deal is not as good as the flexible mortgages with rates of: 6.35 per cent from Scarborough Direct (01723 355 111); 6.39 per cent from Hinckley & Rugby Building Society (0800 774 499); and 6.6 per cent from Coventry (0845 766 5522).

These lenders' deals are also better than Sainsbury's two fixed-rate mortgages, and the 'extra special offers' that are now available through Tesco.

Tesco does not sell own-brand mortgages. Instead, it provides a mortgage finder service on its website (www.tesco.com/finance).

This aims to find the best deal from 400 products, including deals exclusively available to Tesco.

But with the exception of the mortgage from the Yorkshire, which fixes the interest rate at 5.79 per cent for two years followed by a variable rate of 6.74 per cent, none of Tesco's other special offers provided better value than standard deals from Sainsbury's.