3.5% is certainly not a good deal, but I think Andy Pandy is right - the 8% is an obvious loss leader since you can borrow money from Lloyds for less than 8%. Also note that if it wasn't a loss leader they would not limit you to 250 per month, they would want as much as you can afford.
Lloyds have presumably done their sums and estimated how many people are likely to stay when the loss leader rate comes to an end and worked out the optimum rates, though I agree with you that the 3.5% is particularly poor.