The European Central Bank has tightened interest rates for the third time. The key interest rate at which commercial banks can borrow fresh money from the central bank rose to 2.0%. With higher interest rates, banks themselves have to pay more money when they borrow money to make loans. And they pass those costs on to the borrowers.
Negotiate with the bank
“The best remedy for payment problems is to talk to the lending bank,” Christian Prantner, AK’s banking expert and consumer advocate, told Ö1. There are several ways to deal with interest rate increases on a current loan.
Referrals are not a panacea
“Deferrals are a proven remedy if you are having difficulty paying the loan installment,” says Prantner. However, they are not a panacea because interest rates continue to work during the deferral period, which means that the loan balance can build up in the background.
Deferrals can range from three to twelve months and must be agreed with the bank. Banks are not obliged to accept the suspension of installments. “Referrals can also cost money, which can be significantly expensive,” says the AK expert.
Extending the term costs money
Another option would be to extend the loan term if the bank agrees. However, the scope for a long-term loan, for example over a 25-year period, is small. The disadvantage of this solution is that the longer the loan term, the greater the interest balance. “A longer term also costs money,” says Prantner.
Additionally, borrowers could switch from a variable rate loan to a fixed rate loan. However, the bank is not obligated to offer a fixed interest rate for a current loan agreement. “In addition, the banks have severely tightened the fixed interest rate, which means they have become more expensive,” Prantner says. Here it would be worth making a comparison with the fixed interest rates of other banks.
Save on loan interest with a special repayment
If your loan balance is still very high, it might make sense to think about a fixed rate deal. If the term is short, the expert recommends diving in or considering a special refund. Sometimes it is even cheaper to repay the loan early with low-interest savings accounts.
“When it comes to interest rates, banks are very quick when it comes to lending. Interest rates, changes or increases in interest rates are not passed on as quickly to savers, “says bank expert AK.
