Over the past few years, credit ratings have become more and more important in the entire financing area of many banks when it comes to assessing which customer receives a loan and whose credit application must be rejected. By the way, the creditworthiness is not to be confused with the creditworthiness, which merely states that the customer is entitled in principle and on a legal basis to apply for a loan. In general, all persons who are of full legal age and at the same time fully capable of business are eligible for credit. However, it is much more interesting how the banks judge the creditworthiness of the customer, because the creditworthiness increasingly has an influence on the interest that has to be paid on the loan.
Why are more and more current offers with credit-based interest rates provided?
One question that you may ask yourself as a consumer might be why the trend in credit is clearly towards credit-based interest rates. This question is relatively easy to answer, because for the banks credit-related loan interest rates are a big advantage. The credit institution can pay for the increased risk of default that exists with a customer with a mediocre credit rating, through a higher interest rate. If there were no credit-based interest rates, but the amount of the lending rate would be dependent solely on the loan amount and the maturity would be rejected for some customers with mediocre credit rating, perhaps even the corresponding loan applications, as the Bank estimates a single interest rate and the credit rating does not matter would play in the amount of interest. On the other hand, banks can act much more flexibly thanks to credit-based interest rates, which, however, also has disadvantages for the customer in general.
What are the disadvantages of credit-dependent loan rates for the borrower?
In the banking sector, it is often the case that an advantage for the lender is at the same time a disadvantage for the borrower. This can be said so, if you take a closer look at the current offers in the field of credit-based loans. Incidentally, loans with credit-dependent interest rates can be found in almost all lines of business and, in practice, appear primarily at the following loan rates:
- Real estate loan
- installment loan
- Call or frame loan
As there is a certain risk of default for each loan granted, it is understandable that banks are increasingly switching to credit-based interest rates. For the borrower, however, this means, to some extent, a lack of transparency, because hardly a bank can really look into the cards, why it estimates the creditworthiness of one customer, for example, that it comes to an interest rate of 6.9 percent and the creditworthiness is insufficient so that the customer can use the cheaper interest rate of 4.9 percent, for example. In most cases, it is primarily the data stored in the Schufa, as well as the income situation of the customer, that determines the credit rating the bank assigns to the applicant.
Offers difficult to compare
Another shortcoming of credit-based interest rates is, from the customer’s point of view, that I find it very difficult to compare offers in this area. Loan calculators, which are increasingly used to compare loan offers, can, in principle, hardly or no longer be used for credit-related loan interest rates. Since the bank with its credit-based interest rate ultimately only ever specifies an interest margin of, for example, 3.9 to 9.9 percent, such a credit comparison is of little use to you. After all, you would not be given a concrete interest rate for almost all offers after using the online calculator, but only the interest margin within which the loan offer is moving.