Consumer credit interest rates vary greatly from one bank to another, from month to month and also from one file to another. But how does one explain such a change in rates that has a significant impact on households’ borrowing capacity? Answers.
The influence of the Central Bank
Banks finance the projects of their clients through their deposits, but also and especially by borrowing funds themselves from financial institutions like the Central Bank.
These institutions set a key rate and the banks have no choice but to add to the cost of these loans the costs and any risk premiums to grant consumer credit.
Direct credit platforms are less subject to the dictates of central banks since the proposed rate is based on a pooled system in which a community of investors lends to a community of borrowers.
The role of lenders
The cost of credit is also a function of the market. The more borrowers are likely to apply for this type of loan, the higher the rates are likely to increase and vice versa. Also, the rates are updated every two weeks.
If changes in consumer credit rates are followed by all the financing organizations, each bank, each online credit platform proposes its own more or less attractive rates according to its financial strategy. Banks also apply rates that are responsive to borrowers’ demand. Indeed, the most competitive rates are those subscribed for a short time. Borrow € 5,000 over 12 months can benefit from a rate of about 1%. The cost of the credit would then be 27 € against 697 € for the same amount to be reimbursed over 72 months.
The borrowers profile
Applying for the same loan for a similar property from the same bank does not guarantee the same rate. Banks do indeed analyze the borrower file. They focus in particular on the durability of the incomes, on the quality of management, on the capacity of saving, on the state of health. In short, they estimate the risk of default on monthly payments. Based on the score assigned to the borrower, the funder proposes a rate that takes into account the risk premium assessed.