Are lending rates dependent on credit?

If a bank lends, it can make the interest rate dependent or credit rating independent. The latter means that all customers pay the same interest rate. Of course, the borrower must be creditworthy for this in principle.

The credit-independent fixed-rate loan

The credit-independent fixed-rate loan

This form is offered less frequently. It has advantages and disadvantages for borrowers. Certain consumers benefit from this, while others consider the credit-based loan to be more appropriate. Again, to understand: Credit-independent does not mean that the credit rating does not matter. It must be given in principle. If you have a negative credit bureau entry or too low a credit bureau score (below 90 points), you will not receive a loan – not even a “credit-independent” one.

In principle, the Bank sets an average interest rate for such loans that is the same for all groups of borrowers. It is therefore between the cheapest and least favorable credit-based loans. What are the advantages and disadvantages?

Advantages of credit-independent loan:

  • Consumers already see in advertising the valid interest rate. You do not need to start a request to know your individual, credit-based interest rate.
  • Because the prospect does not need to initiate a credit request for comparison purposes, it can not influence his credit bureau score.

Disadvantages of credit independent loan:

  • For people with good credit ratings, the credit rating-independent loan is definitely more expensive.
  • Even for people with a slightly lower credit rating, but in principle creditworthy, he has disadvantages. You may not get this loan because the risk is too high for the bank, but it can not be offset by an individual higher interest rate. Affected are, among others, self-employed.
  • Credit-independent loans are more likely to be given to “secure” fixed-income borrowers. For these they are a bit too expensive.

Credit-based credit

Credit-based credit

In this form, which is offered much more frequently, the bank checks the score of the consumer’s credit request a little more closely and then offers an individual interest rate – depending on the credit rating. That’s basically fair.

Persons with a very good credit rating, such as civil servants, can benefit from an extremely low interest rate, while those with a weaker credit rating, but with a positive credit bureau, can also get the loan. You just have to pay a bit more interest. Accordingly, there are the following advantages and disadvantages with this type of loan:

Advantages credit-based loan:

  • Any borrower with sufficient credit standing can receive this loan.
  • The interest is in principle fair.
  • Particularly persons with best creditworthiness save very clearly with this credit form. Your low default risk is rewarded with very favorable interest rates.
  • At least, people with lower credit ratings will get the chance to get a loan, even if it costs higher interest rates.

Disadvantages credit-dependent loan:

  • Not every borrower opens up the calculation of his score.
  • The interested party knows his individual interest only after his loan request. The bank’s audit includes a credit bureau query that blocks a request from another bank for ten days if the bank does not declare the request – as required – to credit bureau as a pure customer request.

The last point does not matter if the bank acts with due care. This includes expressly declaring in the credit bureau inquiry that the interested party is only interested in his credit terms. In this case, the credit bureau does not make a note which otherwise lowers the score below the required 90 points for ten days. Otherwise, credit bureau will apply this lowering of the scores, so that consumers will not be able to get into trouble with several banks in a short time without restraint.