Why are car loans cheap
Benefit from low interest rates : What to look for in cheap loans
A car, a new kitchen or an expensive vacation. It has never been easier to be able to afford all of this. At least if you are willing to go into debt. While savers whine because they hardly get any interest on their savings, borrowers can be happy. Before the outbreak of the financial crisis, for example, they had to pay an average of over eight percent interest for an installment loan of 10,000 euros for 36 months, today it is only a little over four percent. If you have a good credit rating - that is, you always pay your bills on time - you only get interest rates of 2.5 to 3 percent at some banks.
How customers are attracted
Germans have long got used to the fact that loans can be cheap. After all, dealers have been offering them zero percent loans for a long time. Because this is nothing new and the conditions for classic installment loans are also falling, the companies are now going one step further. The furniture retailer "Who's perfect" is currently offering its customers, for example, "negative interest financing". Anyone who buys a sofa or a cupboard receives a loan for 24 months - at an interest rate of minus one percent. That sounds too good to be true. And it is.
If you read the small print, you will see that customers only get classic zero percent financing - with the difference that the retailer also grants them a discount of one percent. This distinction sounds finicky, but it is crucial. Because discounts are quite common in the furniture trade - and are usually well above one percent. Nonetheless, customers accept the offer. A spokeswoman for “Who's perfect” said the loan was “a complete success”. The number of customers who take out financing in addition to buying has doubled since the introduction of negative interest. Experts like management consultant Peter Barkow say on the other hand: "This is a pure marketing campaign."
Banks have also tested zero percent credit
This category also includes the latest attempts by banks to offer classic installment loans that are not tied to the purchase of a specific product at zero percent. Such loans could be found twice at the beginning of the year: Consumers received a loan of 1000 euros over 36 months for a few weeks via the online portals Smava and Check24. The interest rate on the loan was actually zero percent. But as in retail, these offers were subsidized: In the case of Smava, the platform itself paid the costs for the loan. At Check24, it was a partner institute, Santander Consumer Bank, that bore the additional costs. Just as an electronics retailer offers zero percent financing to sell more washing machines, Smava and Santander did it to get new customers. Customers who they hope will be able to sell them another more expensive loan in the future.
Because even with a key interest rate of zero, no bank can earn on a loan for which it does not receive any interest. After all, interest is not only the price of the loan, but also the risk that the customer will not repay it. This is why experts so far do not believe that the zero percent credit will prevail so quickly in traditional banking. "To do this, the key interest rate would have to drop even more drastically," says banking expert Peter Barkow. However, that does not change the fact that installment loans are currently extremely cheap - and possibly even cheaper.
When a loan makes sense
However, even when interest rates are low, it is not always advisable to go into debt. “A loan always makes sense when it is productive,” says Michael Knobloch, director of the Hamburg consumer center. It can be worthwhile for students to borrow money to buy a washing machine if it saves them expensive laundromat visits. Those who need a car to get to work also benefit from the loan.
Debt for everything that is fun, such as travel, is controversial. Knobloch thinks, however, that a vacation with the family can justify a loan in individual cases. However, you should repay it quickly. "If you are still paying off the loan for the trip when you are ready for a vacation long ago, that doesn't make sense," he says.
What customers should pay attention to
In view of the many lure offers from banks, it is not easy for consumers to find the right loan offer for them. Comparison portals on the net show lists of banks and their conditions at the click of a mouse. But the amount of the interest usually depends on the solvency of the customer. And institutions that land high in the ranking because they theoretically offer the cheapest loan often have the largest spreads in terms of terms. In this case, only those who get the best credit rating from credit agencies benefit. But such people usually do not need an installment loan. The others quickly pay on top of the supposedly cheap providers. In a comparison by Check24, Creditplus Bank lands at the top of the list of the best with an effective annual interest rate of 2.59 percent - but depending on creditworthiness, the interest rates quickly rise to over ten percent. It is then no longer cheap.
The banks are also currently going down with the interest rate, the longer the installment loan runs. However, consumer advocates warn against letting this trick you into a longer term than necessary. Because the more installments you have to pay, the more expensive it gets - even if the interest rate drops slightly. Consumer advocate Knobloch advises adapting the term to individual needs. For example, if you only want to drive a car for five years, you should not take out a loan that will be repaid for more than five years. Otherwise it quickly leads to over-indebtedness.
In addition, many providers often sell customers payment protection insurance together with the loan. But Knobloch says: “In most cases it is overpriced and not very helpful.” Actually, such an insurance should step in if the debtor can no longer pay the loan installments. Only: in many cases it does not do so or only too late. "The most common reasons for a loan default are divorce and unemployment," says Knobloch. But in the event of a divorce, many legal protection insurances do not pay. And if you are unemployed, they often only take action after three months - but by then it can be too late.
What role the Schufa plays
How high the loan interest is mostly depends on the creditworthiness of the consumer - i.e. the probability that the customer will repay the money. Some banks offer credit independent of creditworthiness: With them all customers get the same conditions. However, not everyone receives such a loan: The bank also requires a certain creditworthiness for these loans. It usually ends when the probability of failure exceeds 17 percent.
In addition, consumers should make it clear: every loan they take out is reported to credit agencies such as Schufa. The more loans and the more consumers get into debt, the worse their credit rating will be. Once the loan has been paid off, the Schufa registers it. Three years after the repayment, it is completely deleted from the data set.
However, it is important: In exceptional cases, it can worsen the Schufa score if you inquire about a loan at the bank. Because the institute has two options for inquiring about the creditworthiness of the customer: The advisor can submit a “credit condition inquiry” or a “credit inquiry”. In both cases, the bank receives the same information. Only: The credit request has a negative effect on the consumer’s Schufa score - the conditions request, on the other hand, does not. Online banks therefore work with the latter. In the branch, according to consumer advocates, it can happen that the advisor makes a loan request - even if you just want to inquire first. This is especially annoying when you get several loan offers.
If you change your mind
Anyone who buys a new television set or new clothes has the right to exchange them. What many customers don't know is that there is something like this for consumer credit as well. If you change your mind in the first 14 days after completion, you can withdraw from the loan. Some providers are even so accommodating and give customers a longer cooling-off period - that's in the small print. In addition to the classic installment loan, this right of withdrawal also applies to car loans or real estate financing and, more recently, even to the zero percent loans from dealers. Consumers do not have to justify the revocation. It is important, however, that you submit it in writing - preferably by registered mail. Often these loans can also be repaid early. "Customers have the right to special repayments on installment loans," says Stephan Gawarecki, director of the financial broker Dr. Small. The catch: some banks allow themselves to be paid for this and demand a so-called early repayment penalty.
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