Interest rate based on creditworthiness
Credit- linked interest rate means that the credit interest rate basically depends on the creditworthiness of the debtor . In Germany, there was a special feature that until the end of the 20th century, the conditions for installment loans were typically not graded according to creditworthiness. For some time now, banks have been offering installment loans with a credit rating-dependent interest rate. The creditworthiness of the customer has an impact on the interest rate.
Corporate business
In the lending business with corporate customers, the creditworthiness check based on the rating results in an assessment of the credit risk of the individual debtor. This goes into the risk premium , which the credit institution in the interest rate taken into account. It corresponds to the credit spread for securitized receivables. This results in an individual credit-related interest rate for corporate customers.
Retail banking
In the banks' standardized private customer business , conditions and product features are standardized for all customers of a bank in order to enable cost-effective uniform processing. In the past, this also applied to the interest rates on installment loans and overdraft facilities in Germany . These were the same for all customers of a bank. The reason was that the cost of an individual credit risk assessment exceeded the benefit of price differentiation.
Nevertheless, there were mechanisms that worked in the direction of a creditworthiness-dependent determination of the interest rates: The individual banks operated different risk policies. While those defined high minimum requirements for borrowers, the loan disbursement criteria were more generous at other banks. As a result, the latter naturally had higher loan defaults and tended to charge higher interest rates. While customers with good credit had a choice (and tended to choose the cheaper bank), customers with poor credit had to accept the poorer interest rates of the more generous but more expensive banks.
Due to technological change, individual credit risk assessments have become much easier and cheaper today. In addition, the Basel II framework favors banks that measure and control their credit risks with their own models.
In practice, there are point evaluation systems (including scoring ) which result in the credit default risk expected by the bank. These rating systems are not transparent for the end customer. The method of credit risk assessment is the bank's trade secret and therefore varies from bank to bank. The customer will only find out the actual interest rate as soon as he has submitted all his data to the bank.
advertising
Since the interest rate is determined individually, it naturally cannot be mentioned in bank advertisements. The practice of banks to advertise the lowest possible interest rate has been widely criticized. However, the vast majority of customers have to pay a higher interest rate. It is not uncommon for the interest rate offered to differ from the actual rate by several percentage points.
Therefore, in 2010, the German legislator passed Section 6a PAngV ("Advertising for Credit Agreements") in implementation of Directive 2008/48 / EC on consumer credit agreements, which stipulates that the bank must indicate in its advertising that the interest rate depends on the creditworthiness. The bank may only advertise with interest rates that two thirds of the contracts actually concluded do not fall below.
Individual evidence
- ↑ Creditworthiness-dependent interest rate. In: Fabian Simon, accounting- understanding.de. 2019, accessed July 22, 2019 .
- ↑ Principles for the issuance of creditworthiness-dependent bonds for sale to private customers in Germany. In: Bundesverband deutscher Banken eV July 12, 2017, accessed on July 22, 2019 .