Heidelberg. Borrowing money becomes cheaper. In February, the average interest rates for installment loans fell below the 7 percent mark for the first time since June 2023. This is shown by a current analysis by Verivox. As a bank survey conducted by the comparison portal among its cooperation partners in the installment loan business showed, the majority of financial institutions expect further interest rate cuts in the future.
Interest rates fall to 6.99 percent in February
The interest rate turnaround reaches the installment loan market. In February, the average interest rate on installment loans taken out through Verivox fell to 6.99 percent. This is the lowest level since June 2023. In the previous month of January, interest rates were 7.14 percent. At the previous high in August 2023, borrowers still had to pay an average of 7.32 percent interest.
From a long-term perspective, loans are still expensive despite the recent interest rate cuts: a year ago, installment loan interest rates were 5.87 percent and at the all-time low in February 2022 they were 2.89 percent.
“Although loan interest rates are currently still at a high level compared to long-term standards, the recent decline could herald the beginning of a noticeable recovery,” says Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH. “On the provider side, many market participants also assume that installment loan interest rates will continue to fall over the course of the year.”
The majority of banks expect interest rates to fall
Verivox asked 15 banks with installment loan business about their assessments of further market developments. Eight of these institutes assume that interest rates will fall in the coming months, five banks expect interest rates to remain largely constant. Only two financial institutions expect that installment loan interest rates will rise again over the course of the year and rise compared to the current level.
In addition, the experts from nine credit institutions assume that the peak in interest rates has already been passed and is now behind us. One bank each expects installment loan interest rates to peak in the first and third quarters. The remaining four institutes did not provide any information on this.
When taking out a loan, pay attention to free special repayments
“At the moment there is a lot to suggest that we will not see interest rates as high as the previous peak in August 2023 for a long time,” says Oliver Maier. However, it cannot be reliably predicted how quickly interest rates will fall. A decisive factor is the monetary policy of the European Central Bank. “We are currently expecting the European Central Bank to lower its key interest rate for the first time next summer, and by then the installment loan interest rates are likely to fall even more significantly,” says Oliver Maier. “But in the past, the market has often priced in expected central bank decisions in advance. That’s why interest rates could fall earlier.”
However, those interested in credit do not have to keep putting off necessary purchases in the hope of better financing conditions. If you pay attention to free special repayments when taking out a loan, you can refinance your loan to a cheaper loan at any time without additional costs as soon as the interest rates actually go further down.
A calculation example shows that savings can sometimes be realized in this way: In August, Verivox customers had to pay an average of 7.32 percent interest on their installment loan. Anyone who takes out a loan of 20,000 euros with a term of six years at this interest rate will still have a remaining debt of 18,638 euros to repay in February 2024. By refinancing a loan at the current median interest rate of 6.99 percent, borrowers would save a total of 181 euros in interest over the remaining term.
methodology
All installment loans that were taken out via Verivox during the study period were included in the interest rate analysis. The so-called median interest rate was evaluated. It is representative of consumers with average creditworthiness. Half of all borrowers took out their loan at this interest rate or cheaper.
For the bank survey, Verivox asked its cooperation partners in the installment loan business about their expectations regarding further market developments. 15 credit institutions took part in the survey. Was asked: How do you think the actual interest rates for installment loans will develop by the end of 2024? – When do you think we will see the peak in installment loan interest rates?
2024-03-02 07:20:26
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