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Strong Interest Rate Differentials in Online Credit



Without a doubt: online loans enjoy a steadily growing popularity in Germany and for good reason, because they are easy and quick to implement, without time-consuming running available and also equipped with a “24/7 order” functionality. Peace, joy and pancakes? Not at all, because online loans have their hooks and these show nowhere clearer than the lending rates. This is particularly true for those financial institutions that specialize in the provision of online loans. The current study by the German Institute for Service Quality (DISQ) shows how serious these interest rate differentials can be with regard to the loans offered. The DISQ examined a total of 9 providers specializing in the provision of online loans. As already mentioned, the result shows significant interest rate differentials in the online credits of the audited credit providers.

Interest of up to 10% on the online loan

 Interest of up to 10% on the online loan

The basis of the DISQ study was the conduct of covert telephone and e-mail tests as well as checks on the Internet presences of the nine banks under the points “ease of use” and “information content”. As a basis for the analysis of installment loans, the current offers as of 1 July 2015 were used on the basis of various loan characteristics, including the interest rate. For the DISQ study, the installment credit conditions of the individual providers were compared in three different test scenarios, including a 20,000-euro installment loan with a maturity of 72 months. It turned out that the so-called two-thirds interest rates, ie those effective annual interest rates, which receive two-thirds of the customers of the respective credit institution, differed the most clearly. Thus, at the cheapest loan provider 2 out of 3 customers made such a loan with an effective interest rate of 4.30 percent on average, whereas the most expensive interest rate was at a hefty 9.34 percent, more than twice as high as the cheapest loan offer!

The Crux with the credit-dependent interest

 The Crux with the credit-dependent interest

It is interesting that in the study only those installment loans could be positively valued, which did not adjust the interest rate according to the creditworthiness of the customer. This means that those loan offers offered with so-called credit-based interest rates performed significantly worse. In the nine banks tested, only 3 of the 9 tested banks had installment loans with credit-independent interest rates in their portfolio!

The amount of interest not alone in the online loan

 The amount of interest not alone in the online loan

Last but not least, the study indicates that the mere look at the effective annual interest rate alone does not constitute a sufficient valuation criterion for a good credit. In particular, care should be taken to ensure the possibility of flexible repayment and special repayment possibilities at no additional cost within the repayment term. That this is not the rule is shown here by the DISQ study. For example, only 2 of the 9 tested credit providers offer a free early repayment of the loan. Further information about the study of the DISQ can be found here.