Loans can sometimes be quite expensive – of course, this depends above all on the amount of interest, but also on the ancillary loan costs, which is why it always makes sense not to focus on the nominal interest rate but on the effective interest rate of the loans when comparing loans To consider. Unfortunately, loan interest rates are sometimes difficult to compare, and finding a loan with low interest rates can be difficult.
Effective interest rate
Because the banks do not advertise their loans with the nominal interest rate, but with the effective interest rate – that is, the ancillary loan costs that are incurred are already included in the interest rate, but the details are never the final interest rate.
The final interest rate is always determined by the creditworthiness of the borrower – accordingly, the advertised interest rate, which appears, for example, in loan advertising, is always an idealized interest rate – but borrowers only receive this if their creditworthiness is excellent.
Excellent or very good creditworthiness – this means that there are no disturbing negative Credit Bureau entries in the borrower’s file, that he has an attractive income that is sufficiently high and also regular, and that, depending on the type of loan and loan amount, he has the usual bank collateral.
Case of the loan with poor credit rating
The poorer the customer’s creditworthiness, the more the bank adds to the requested interest rate in order to limit the risk that it takes by lending the money. The elimination of risk considerations generally means that the price of the loan becomes more expensive, for example in the case of loans that are permitted without Credit Bureau information, such as can be found abroad, offered in Germany via credit brokerage.
A negative Credit Bureau information does not necessarily lead to an increase in lending rates – on the one hand, it is relevant to what type of negative Credit Bureau entries it is, because not all weigh the same weight, and on the other hand, a bad Credit Bureau does not necessarily mean that the Creditworthiness is bad.
The relevant plus for the bank, which remains after deducting expenses from the borrower’s monthly income, is relevant, because this amount shows how much capital the customer has at his free disposal.