How is it that loans are once more expensive, sometimes cheaper? Decisive for the level of lending rates is the interest rate policy of the Lentral Bank . This controls the lending by the banks via the key interest rate.
The key interest rate is the interest rate that banks have to pay to the LB when they borrow money there and refinance themselves. For low interest rates, banks charge their customers lower interest rates than a higher interest rate.
In turn, the LB does not set the level of interest rates at its discretion, but to influence the economy.
Interest rate as a control instrument for the magic quadrilateral
With a weak economy and low inflation, it lowers the key interest rate. Banks can refinance cheaply and, in turn, spend low-priced loans on businesses and consumers. Companies invest more in production facilities, and consumers increase their consumption. An increasing consumption rate and an increasing investment mean that companies produce more and therefore more people find work. The more people are in employment, the more money they can spend, the spiral revolves through low interest rates.
However, rising demand also leads to rising inflation. To some extent, the LB speaks of two percent a year, inflation is healthy, indicating solid economic growth. However, if the inflation rate reaches levels well above two percent and over a longer period, then the LB will have time to act again. In this case, it increases the interest rate, borrowing money is more expensive. As a result, the credit-financed purchase of goods decreases. As demand falls, so do prices. As prices fall, so do corporate profits, investing less in new assets and personnel. Rising interest rates rather than low interest rates put a damper on inflation.
The Alibank, as the national forerunner of the LB, had to contend with the same problem. We’re talking about the magic quadrangle. This is based on a balance between
- full employment
- Moderate price increase
- economic growth
- External economic balance
Why are small business loans cheaper at one bank than another?
A look at our credit comparison shows that even with extremely cheap loans there are significant differences between the individual banks :
- First of all, it is striking that direct banks generally offer better terms and cheaper loans. This is not surprising as the administrative costs of these institutions are significantly lower. You do not have to spend money on renting branches and wages for the staff working there.
- Another point is the refinancing options of the banks. A bank with a high deposit, money on savings accounts, daily allowances or time deposits does not have to refinance externally for more expensive money.
- The third point, why one bank calculates higher interest rates than another, can be in the target group of the customers. There are institutions that set very tight credit criteria to limit the number of loan defaults to an absolute minimum. These usually charge quite favorable interest rates, as the interest rate prizes in the credit default risk. Other banks, on the other hand, say we run the risk of increased credit losses, but also increase our total loan volume, which in turn puts our losses into perspective. However, since there is a higher risk, this is reflected in the interest.
- Finally, there are banks that simply try to generate the highest possible interest rate. The lending is not online, but either in stores or via credit intermediaries. However, such institutions are not found in a credit comparison calculator.
How do you find a cheap small business loan?
For the consumer, of course, the interest rate is crucial in the search for cheap loans with low interest rates. He will, regardless of whether high-interest or low-interest phase, always look for the cheapest provider. An indication of how expensive the loan will end up is the two-thirds interest. These must be named by the banks in accordance with the price regulation. The two-thirds rate states what maximum interest rate two-thirds of customers have to pay. The closer this interest rate is to the lower range of the range, the greater the likelihood of profiting from low interest rates as well.
Here are two examples:
- Bonded borrowing rate 1.88% pa to 4.55% pa Repr. Example according to §6a PAngV: Net loan amount 10,000.00 EUR; Credit: EUR 180.40; Total amount: 10,817.96 EUR; Number of loan installments: 60; Annual percentage rate: 3.19%; Tied debit interest: 3.14% Here, the customer is likely to expect an interest near the upper limit.
- Bonded borrowing rate 1.97% pa to 10.47% pa Repr. Example according to §6a PAngV: net loan amount 4.500,00 EUR; Credit rate: EUR 84.67; Total amount: 5,090.40 EUR; Number of loan installments: 60; Annual percentage rate: 4.99%; Tied lending rate: 4.88% In this case, the two-thirds interest is much closer to the bottom.
However, there are other points to consider when choosing a loan:
- Are free special repayments possible in whole or in part during the term? Not every provider waives the prepayment penalty.
- Can I schedule installment breaks? Young families in particular can take a breather in the pre-Christmas period or on vacation.
- Do I get a loan decision immediately or do I have to wait a few days?
- Can I choose the runtime, or am I bound to fixed specifications?
- Is the loan only available in thousands of steps, or in increments of 500 euros or 100 euros?
Not crucial for every borrower, but with a rising trend, is the question of whether he can put the application completely online. This includes the electronic signature, VideoIdent procedure and digital transmission of the documents, or whether he still has to go to the post office.