The interest rate
A loan with credit-independent interest is not the same as a loan without credit bureau. Independent of credit means that the lending rate is decided independently of the creditworthiness of the borrower. The interest rate is therefore the same for all borrowers, with good or weak credit ratings, and is therefore also called fixed interest. An adequate credit rating is nonetheless fundamental to obtaining a loan.
- Credit-independent interest rates are the same for all borrowers (hence also called fixed interest rates)
- Loans with a credit rating-independent interest rate still require sufficient creditworthiness
- Credit-independent interest rates partly cheaper than credit-based interest rates
- By contrast, loans without credit bureau usually have higher interest rates
Credit-dependent vs. credit-independent interest
In the case of payday loans from the various banks, there are usually two different types of interest – credit-dependent and non-interest-bearing. More often there is a credit-related interest rate, which is specified in a bandwidth with upper and lower limits. The alternative to this is the credit-independent interest rate, also known as fixed rate.
Loans with a credit-based interest rate are also eligible for borrowers with lower credit ratings. The sentence “Interest rates include risk” means that the borrower has to pay the higher the interest rate, the higher the credit default risk for the bank. Some institutions also take into account the term of the loan and the amount of the loan in the case of interest-rate-dependent interest. A longer maturity, for example, means a higher risk of default for the bank and is therefore provided with a higher interest rate.
If a bank offers a fixed interest rate, this means a single interest rate for all borrowers, regardless of maturity, loan amount and credit rating. While the credit-based interest rate allows a mixed calculation across all credit ratings, the credit institution has to filter out the borrowers more with a single interest rate. Customers with insufficient creditworthiness will probably not have a chance here. You would have to apply for a loan without credit bureau.
If you compare the fixed interest rate of a bank with a credit-based interest rate, you get an interesting picture. In September 2018, for example, KDP’s fixed interest rate was effectively 3.49 percent annually. The two-thirds interest of Risonbank, on the other hand, was effectively 4.90 percent effective in the year. The two-thirds rate indicates which maximum interest rate at least two-thirds of the borrowers have to pay. The examples show that KDP is cheaper with the fixed interest rate than, for example, Risonbank uses the credit-based interest rate for the majority of its clients.
Fixed rate with two meanings
Credit institutions use the term “fixed interest rate” for payday loans as a synonym for interest-free, maturity-independent and sum-independent interest rates. In business, however, fixed interest means that the interest rate is fixed for the entire term. The counterpart to this is the variable interest, which is adjusted at certain intervals during the loan period in accordance with the development of a reference interest rate.
For whom is the non-cash interest rate worthwhile?
In the first place, the fixed interest rate is often worthwhile for people with medium to poor credit ratings. However, borrowers should not be deterred if they feel they are not meeting the criteria. A condition request at a bank costs nothing and does not affect the credit bureau (as long as only a condition request and no request for a quote is made!). Against this background, it is therefore advisable to be present at several banks. Since loan requests are often made online today, the time involved is marginal. However, if you are aware that you have one or the other credit bureau entry or you do not want to have any further information in your credit bureau file, you should focus on banks which grant a loan without credit bureau.