Interest rates are reaching historically low levels. A boon for individuals who benefit from real estate loans at very advantageous conditions. On the other hand, the situation is very different for consumer credit. But why are personal loans so expensive?
With the current interest rates, the context is favorable for credit. A phrase that recurs frequently in the economic and financial press. But, on closer inspection, not all borrowers benefit. The big winners, on the other hand, are the people who bought housing credit.
For real estate loans over 20 years and more
The wears rate – a true barometer of borrowing conditions – fell by 36% in 5 years, going from 4.3% at the end of 2015 to 2, 77% for the 4th quarter of 2019. Calculated on the basis of the average interest rates applied by retailers, increased by a third, it corresponds to the maximum rate that a bank can apply.
In contrast, customers taking out small amounts of loans (such as bank overdrafts) are largely overlooked by low rates. Far from having fallen, borrowing rates, measured by wear and tear, have on the contrary increased in recent years. Whereas at the end of 2015 the loan wear rate of less than 3,000 dollars was 19.97%, it now exceeds 21%, an increase of 5% in 5 years.
Between these two extremes, the more consequent personal loans. For credits from 3,000 to 6,000 dollars, the banks reduced their rate by 10% in 5 years and by 27% in the case of larger loans. These borrowers therefore effectively took advantage of the favorable monetary context, but to a lesser extent than those having contracted a mortgage. So much for the observation. But how to explain these so different evolutions according to the type of loan?
Management fees that weigh more on consumer credit
According to the French Association of Financial Societies (ASF) which federates some 280 financial institutions and represents 50% of the consumer credit market to these differences, r Would result from the very construction of the interest rate. Whether it is a real estate loan or a personal loan, the proposed rate essentially depends on three parameters.
The cost of refinancing first of all, which is a function of the financial engineering developed by the bank to obtain liquidity. For example, members of the ASF are not collectors of bank deposits.
They must fetch the resource either internally via their parent company, or on the markets, illustrates, delegate general of ASF. In recent years, under the impetus of the monetary policy of the dollar plan Central Bank, it is this cost that has fallen.
The second determinant of the interest rate
the cost of risk, that is to say, the probability that the borrower will default. It is measured individually, through the assessment of the borrower’s financial situation (his score), but also collectively, on the scale of the bank’s portfolio. The cost of risk is higher in consumer credit, underlines Good Finance.
For a real estate loan, the lender asks the client for borrower insurance and a guarantee in the form of a bond or mortgage. So the probability of non-reimbursement is low. This factor explains why the rate of a home loan is, in principle, lower than that of a home loan. On the other hand, it does not explain their different evolution, insofar as there is no reason why households are less solvent today than in the past.