As in any other industry, the credit market is subject to ongoing development and corresponding trends. However, this does not only mean interest rate movements per se, but also the way banks calculate interest rates. This means first and foremost, which interest rates customers have to pay for a loan. While it was still common practice a few years ago to offer a fixed uniform interest rate on a loan, it now looks different. Anyone who closely monitors the credit market is finding that more and more credit offers are offered with a credit-based interest rate. A development that should be considered with concern. Because not every trend develops to the advantage of a consumer.
Two interest rate models determine the market for loans
The banks use two common interest rate models, especially for the two most common loan options – the installment loan and the motor vehicle loan. First, there is the group of credit institutions, the so-called non- interest – bearing interest rate . In this case, either the same amount of credit applies to each customer or the amount of the loan interest depends on the term and loan amount of which the customer decides. In contrast, there is an ever-growing group of banks that opt for a credit-based interest rate on their loan offer. Here, it is essentially the creditworthiness of the customer that is instrumental in deciding which loan interest to ultimately pay. If you look at creditworthiness-dependent and credit-independent interest rates in total, depending on the type of loan, there are three to four influencing factors that affect the amount of interest payable.
- loan amount
- running time
- Creditworthiness of the customer
Credit-based Interest Rate: Benefits for the Loan Customer? None!
Does the question arise as to whether this trend can actually derive any advantage for the customer from the lending banks? Here can be answered with a clear “No”. Because basically it would be exclusively credit seekers with a very good creditworthiness, who benefit from this system. However, since there is hardly anyone in Germany who has a TOP credit rating according to the criteria of the credit reporting agencies a la SCHUFA, etc., the best interest rate offered by banks would hardly be achievable. As a result, the bank charges a significant interest premium to customers with mediocre or poorer credit ratings. Another drawback is definitely that offers that include a credit rating-dependent loan rate, compare very poorly with other loan offers. Because a credit calculator does not work reliably at this point, because just can not assess the extent to which the creditworthiness of the customer actually affects the interest rate.
Conclusion: The lending bank benefits primarily from the credit-based interest rates, because it can individually set a specific interest rate for each customer, without having to justify in detail.