Credit market: The unit rate is the new lock rate

More and more banks advertise with credit-independent unit interest rates. Many consumer advocates praise the institutes for the green clover.

But in reality the optically favorable and transparent conditions are the new decoy interest, which should be abolished with the consumer credit guideline actually.

Banks use very precise procedures for credit checks. Each applicant can be assigned a statistically very accurate credit default probability based on scores, income, professional status, etc. Each bank praises this risk in its lending rate: no loan is issued at an interest rate that does not adequately cover the risk.

Loans with unitary interest rates are not fair

Loans with unitary interest rates are not fair

If a loan is granted on a uniform, “non-cash” interest rate, the interest rate only adjusts to the credit risk in exceptional cases. There are basically three options: If the interest rate is higher than it would be on an individual basis, the loan is too expensive. If the interest corresponds exactly to the risk assumed, it is appropriate – this variant naturally only applies to a minority of borrowers: those with the “border bonus”.

On the other hand, if the interest rate is lower than would be the case for a credit-based assessment, the loan will not be disbursed. No building insurer insures a house with a thatched roof on the terms of a tile roof against fire. Honorable supporters of the unit interest rate, however, assume that banks do exactly this in a mixed calculation.

Banks are looking for higher margins

Banks are looking for higher margins

But why (direct) banks so often place their unit interest rates in prominent positions of the relevant comparison ranking? For this, several motivations can be introduced, all of which have the ultimate goal of achieving a higher margin in the lending business that is under pressure due to the low-interest phase.

First, a bank can set credit requirements very high. The “uniform” interest rate will only be given to borrowers with first-rate credit and very low credit default risk. For this target group, the interest rates proposed by many institutions in the range of 5% are too high: due to the low refinancing costs, the loans could even be paid off even more favorably. This is confirmed by interest-bearing loans, which are available (for approx. 3-5% of the applicants) at correspondingly low interest rates.

New interest rate policy in response to the credit directive

New interest rate policy in response to the credit directive

Second, banks with low “unit interest rates” can easily circumvent the ban on decoy offerings. Applicants with too low (because average) credit ratings receive a rejection coupled with an offer to re-examine the application for another financing product. As a result, the primary advertised loan can be advertised as “non-credit-standing” and the non-complementary part of the market can be serviced at different prices. The supposedly transparent unit interest rate is then nothing else than the new lock interest.

That loans with uniform interest rates are considered so uncritically by consumer insiders. If the calculation of the alleged mixed costing were to occur, a natural law would be undermined: the default risk is an essential component of the cost of a loan. If the (border) costs exceed the price (interest), the production (lending) is not profitable. If the foreground transparency is not the true image of the market, margins are generated elsewhere – the least known and therefore not transparent.

Loan processing is not favored by standard interest rates

Loan processing is not favored by standard interest rates

The fact that uniform interest rates reduce the processing costs of banks must be ruled out. Each applicant is independently of the interest rate determined on the basis of credit bureau and self-assessment, so that the effort is always identical. Where occasionally small loans with uniform interest rates are offered for sale, there is a cross-subsidization from the marketing budget.

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