Not so long ago, fixed-rate loans were very rare loan offers. This was before the introduction of the consumer credit directive in 2010, when the banks were allowed to advertise their loans with enticing low interest rates. These low interest rates usually had little in common with the actual interest on a loan, which is why it was often referred to as decoy offers. However, the consumer credit directive made it mandatory for banks to name the actual loan rate, which is why fixed interest rates on loans have been offered again since then.
Fixed-rate loans protect against surprises
The fixed interest rate has the great advantage, of course, that you know the amount of the repayments exactly and that you don’t suddenly have less money available due to interest rate increases. This means that your own budget can be planned over the entire term of the loan and you know the conditions right from the start. A loan with a fixed interest rate is therefore particularly worthwhile in times of low interest rates, where an early rate hike can be expected.
The interest rates for a loan with a fixed interest rate vary widely and are sometimes assigned depending on the credit rating. Therefore, the interest is sometimes given in a range of 3.00 to 12.99% – with a very good credit rating, you can look forward to a lower interest rate, while a poor credit rating leads to a very high interest rate. In addition, one should pay attention to whether the loans with fixed interest are stated with the amount of the nominal interest or the so-called effective interest. Because only the effective interest rates are really meaningful here, since they take into account all factors influencing the total interest rate.
Requirements for the loan with fixed interest
As with all other loans, the borrower needs a good credit rating on the one hand, which is usually checked by Credit Bureau. If the loan is still granted despite poor creditworthiness and the interest rate rises as a result, the pros and cons of such a loan must be weighed up. In this case, a credit-independent loan may be the right choice, but this usually results in a generally high interest rate level. In addition, of course, your own income also plays a role, because only with a regular income can loans with fixed interest rates be granted. The amount of the loan depends on the amount of income, with the loan amounts at most banks between USD 1,000 and USD 75,000.
Debt restructuring when interest rates fall
If you have agreed on a loan with fixed interest rates at a time when the interest rate is relatively high and the general interest rate falls significantly at some point, then this is very annoying in most cases. But there is still the option of rescheduling, in which the remaining loan amount is paid off with a new loan contract.