The general assumption is that when interest rates are at a low, this is also synonymous with very cheap loans. A fallacy, as a comprehensive market analysis by consumer protection agencies has now shown.
If they are the interest rates in the basement, the saver suffers and the borrower is Freud. This, or at least that’s how consumers perceive the current low interest rates. Supported also by, always in any medium, finding statements of financial experts that straight now is the best time, in order to convert long-sustained purchases via favorable credit into the reality. Admittedly, this statement is essentially correct, especially as the banks are not tired of looking for potential customers with cheap credit offers. What is the problem? What is presented in advertising as a cheap credit offer often has very little to do with reality in the form of a real credit deal. At least this is the result of a comprehensive market analysis by consumer protection agencies on the subject of “credit costs”.
Instalment credit with fixed interest rate rather seldom
What is basically “upsetting” everyone negatively when it comes to credit is the regulation of the so-called “creditworthiness-dependent interest rate”. Thus, the market analysis of the consumer protection agencies showed that only two of the instalment credit offers tested offered an interest rate for your consumer credit that was independent of creditworthiness.
The rest of the credit offers of various banks that were examined under the microscope referred in small print to the fact that the interest rate for the instalment credit offered was creditworthiness-dependent. With this interest rate model, one bank had to offer a range of 2.45 percent to a maximum of 13.7 percent effective interest.
The effect of such a range in the interest rate for customers is illustrated by an example:
The credit request is £10,000 for free use with a term of 48 months. If a customer with a top credit rating were to receive such a loan, he would have to pay a total of £502 interest over the entire term of the loan. Where, on the other hand, a loan customer with a low credit rating, i.e. at the upper end of the interest rate range, would have to bear an interest burden of a handsome £2855 over the entire term of the loan. A burden that is roughly five times that of a loan customer with top creditworthiness.
Installment credit: High costs in some cases even for options
However, even those who believe they have received a favourable loan due to a good credit rating and the associated low interest rate may well experience unpleasant surprises at a later stage of the loan term. This is the case, for example, with the topic of “early loan repayment”. Here too, some banks are not exactly customer-friendly with their loan offers. Either there was a limit on the maximum amount of credit that could be redeemed prematurely, or a fee was charged simply for agreeing such a possibility of early loan repayment.
The picture is somewhat different, however, when it comes to the issue of deferral of instalments. Here, the banks were more moderate in setting their charges for this service. Anyone wishing to take advantage of an instalment deferral can expect fees of between £5.90 and a maximum of £40, depending on the bank. Only with 3 banks and one bank group is the offer of the installment break generally free of charge.
It has been shown time and again: If you are looking for a cheap instalment credit, you should not be blinded by advertising promises on posters or by online advertisements on the Internet. A and O remains the neutral credit comparison, which should not only be based on the interest rate (filter and compare only fixed interest offers here), but should also include a look at the general credit conditions. If you don’t want to experience any unpleasant surprises later, which unnecessarily burden your budget, you should take the time for an extensive credit comparison.