Loan Interest Rates – How Can You Benefit From Interest Rate Development?

It is a basic principle of a market economy: Whoever lends money demands a fee in return, the loan interest. Interest on borrowed money is currently very low – to the delight of many bank customers who want to take out a loan. Because low interest rates ensure that the monthly installment falls and that there are less borrowing costs overall. But despite the favorable interest rate development, the lenders’ loan offers sometimes differ enormously. The reason: banks calculate an individual interest rate for each customer. The level of loan interest is influenced by several factors.

This is how the bank sets the interest rate

Banks determine the amount of loan interest based on several factors. In addition to the general interest rate level on the capital market, which is significantly influenced by the key interest rate of the Cream Bank and by supply and demand, the individual financing framework and the needs and opportunities of the customer play an important role.

The key interest rate – when the Cream Bank turns the interest rate screw

The key interest rate of the Cream Bank  is an important factor influencing the level of lending rates. With the key interest rate, the Cream Bank can directly influence the offers of donors. The background: banks can lend and deposit money at the Cream Bank. The key interest rate indicates how much banks have to pay if they borrow money from the Cream Bank. In March 2016, the Cream Bank cut its key interest rate to 0.0 percent.

This means that banks receive money from the Cream Bank on very favorable terms. The good news for borrowers: This low interest rate can be passed on by lenders to their customers. The aim of the Cream Bank is to bring more money into circulation with a low key interest rate and to counter deflationary tendencies.

The individual financing framework is crucial

How high the loan interest will be depends on the key data of the financing. The important thing here is: How much is the loan? How much monthly installment can the borrower afford? And: what does the borrower need the money for?

Which type of loan has the cheapest interest?

Whether for the new TV, the long-awaited vacation trip or buying your own home: the type of loan varies depending on the use. If you want to fulfill your dream of having your own four walls, you need a building loan. Banks generally grant conventional installment loans to finance their vacation trip or to buy a television.

It is not possible to say how many percentage points the different types of credit differ from one another – but there are clear trends. The interest pyramid is therefore a guide that can help you decide on the right type of loan. But consider: The amount of the loan interest always depends on your own credit rating and the offer of the provider.

As a rule of thumb, building loans are usually the cheapest. This is because the investment in a property creates a stable countervalue that serves as security for the bank – in many cases, an installment loan will be more expensive because it is not earmarked and has no additional collateral.

You have to dig deepest into your pocket, however, if you pull out your checking account and take advantage of an overdraft facility. You should therefore only use overdraft facilities in exceptional cases. You should also be particularly careful with a loan without KSV. The reason: The credit check by a credit reporting agency is a standard procedure for donors in order to be able to better assess their own risk. Offers that promise not to take a KSV check are therefore often dubious. Sometimes some providers even pretend not to do a credit check and instead use another credit reporting agency, such as CRIFT.

Fixed interest rate and repayment amount

Loan interest Austria: comparison shows current interest values

If you want to know how high the loan interest rates are, the best thing to do is to use an online comparison. With just one click you get an overview and can conveniently and securely conclude the cheapest offer online.

For credit comparison

The duration of the fixed interest rate and the repayment are laid down in each loan agreement. And that also has an impact on the level of loan interest. Because if you choose a long fixed interest rate, you often have to expect interest surcharges. The reason: Future interest rate developments are difficult to estimate. And the bank can only react to interest rate hikes after the fixed interest period has expired.

In periods of low interest rates, as is currently the case, a long fixed interest rate usually pays off in order to benefit from the low interest rate for as long as possible. In addition, the longer the term, the higher the risk for the bank that something unpredictable happens and the borrower, for example, becomes sick or unemployed. Investors can often pay the increased default risk with an interest premium. In the case of construction finance, the repayment amount also influences the interest on the loan. Because those who repay a high installment to the bank from the start receive an interest rate advantage.

The personal starting point

As diverse as borrowers’ financing needs are, so are the requirements that every bank customer has. The customer’s own initial situation has a decisive influence on the amount of the loan interest. Factors such as creditworthiness, equity, the professional group and additional collateral such as real estate or life insurance play an important role in determining the interest rate. The following applies: the higher the income and the more equity and collateral the borrower can show, the lower the interest on loans.

5 tips to save on loan interest

When taking out a loan, nobody wants to pay more than is absolutely necessary. If you pay attention to some important factors when choosing your loan, you can currently borrow money on favorable terms.

Tip 1: Installment loan instead of an expensive overdraft facility
If you overdraw your checking account regularly, you are usually better advised to take out an installment loan.

Tip 2: contract free special repayments
The more flexible the repayment modalities, the better. Therefore, secure yourself the possibility in the loan agreement to make free special payments. In this way, you become debt-free faster and save on loan interest.

Tip 3: Agree long interest rate fixation in low interest phases
You can save a lot of money if you secure the current low interest rates and contractually agree to a longer fixed interest rate.

Tip 4: Choose high repayments and save interest
If you repay high, you are debt-free faster and pay less loan interest. Especially in low interest rates, you should try to pay off as quickly as possible to get the most out of the interest rate low.

Tip 5: Use online comparison portals
There are countless loan providers in Austria. So that you don’t lose track, you should always compare offers online before taking out a loan. This not only gives you an overview – you can also conclude the offer with the lowest loan interest directly online.

Interest on loans: development difficult to estimate

The development of lending rates depends on several, sometimes very complex, economic factors. Even experts cannot make reliable forecasts for the future. The current interest rate level is therefore ideal for anyone who needs a