A borrower's individual circumstances will determine the level of value offered by a new type of loan promotion launched by First Direct, an expert has claimed.

The bank is seeking to increase customer loyalty and aiming to attract borrowers who will stay with them for the length of the loan term, said Samantha Owens of finance website Moneyfacts.

First Direct announced that it will refund 25 per cent of interest paid on loans between £5,000 and £25,000 with a term of at two years taken out before October 2nd 2006, provided that the loan is not settled early and no repayments are missed.

Customers thinking of taking out the loan should look at how they are planning to use it, as if they were likely to default on payments or be able to pay it back early, they would sacrifice the incentive, she said.

Ms Owens said that she thought the offer reflected wider changes within the personal loans market, as lenders moved away from charging fees to customers who repaid early and towards offering incentives for those who kept to the terms of the loan.

"The market seems to be moving away from penalties," she said.

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