A bank manager once remarked something too freely that he didn’t need a survey or study to find out what his customers wanted for credit. He knew this very well: The loans should be as cheap as possible.
The real problem on the credit market is not that the suitable offers are missing, but that customers do not know what a low-interest loan is and it is very difficult to make it clear to them.
A low-interest loan: the different interest rates
In today’s financial market, you can no longer find your way around without the necessary specialist knowledge and without the necessary knowledge of certain specialist vocabulary. There is hardly anything that is as exemplary as the credit division, as the bank manager quoted above made clear.
Two different interest rates have been established there: the fixed borrowing rate and the annual percentage rate. The latter has the unpleasant quality of always being higher than the first. This often gives rise to the assumption that the loan at hand is not a low-interest loan. But this is often enough a mistake – at least if you start from the meaning of the word.
Because the question of whether a loan is a low-interest loan is decided by the bound borrowing rate and not the effective annual interest rate. The borrowing rate describes the true interest. Among these, people imagine the bank’s margin on a loan. The business is: it pays you money, so you have to pay back more later. This excess is called interest and is the reward for the money house. The problem with this is that a bank incurs additional costs by managing a loan. So every borrower will attach great importance to the fact that the repayments are recorded exactly. These costs are collected through fees. These are identified by the effective annual interest rate.
The fees are the difference between the borrowing rate and the annual percentage rate. A low-interest loan does not necessarily have to be a really cheap loan.
A low-interest loan: Beware of the individual case costs
The problem, however, is that the APR only picks up the costs that are guaranteed to be paid. He is blind to the fees that may only be payable if, for example, you want to make a special repayment.
It is therefore very important to look closely at the loan contract before lending and work out what the costs might be. Because the individual cases that trigger the costs come faster than most customers think.