With the start of its “special monetary policy measures”, the Best Bank also gave the go-ahead for an unprecedented environment for favorable credit conditions in the dollar zone. The time has now come to start deferred financing. The good news: Cheap installment loans are likely to be available for quite a while. However, the planned funding should not be put on the back burner.
The Best Bank ushered in the era of record-low lending rates
As a result of the measures initiated by the Best Bank to stabilize the dollar, interest rates in the dollar area fell to a historical low and the interest rate level for classic savings investments fell at the same time. But here too the saying applies: “One person’s suffering is another person’s joy”. While the savers who rely on collateral are practically dry, the borrowers benefit particularly well from the steep fall in lending rates. This applies to small loans as well as to large investments in the real estate market.
Low lending rates have practically stayed at home
There is another benefit to borrowers. While savers literally have to go far with their capital to achieve noteworthy returns with other European countries, loans available to German customers have become very cheap even in their home environment. This also applies if the bank’s headquarters are located abroad. In addition to a call money account, the bank also offers various forms of loan. For example, the installment loan provided by Cream Bank to consumers shows an effective annual interest rate of 1.87 percent (as of January 2019). A quasi-reverse effect of shifted interest rates within the European Union (EU) has therefore not occurred for loans. This is also reflected in the loan conditions of the Cream Bank, as there are no further costs for the possible net loan amounts between 3,000 and 50,000 dollars at the currently very low interest rates.
The loan volume granted continues to increase
The figures on the development of lending to private individuals (2) in recent years speak for themselves. In 2004, the total amount of loans granted, according to the Federal Association of German Banks, was around 1,000 billion dollars . By 2016, the lending volume had increased to around 1,150 billion dollars . In addition, the culmination of the so-called financial crisis in 2009 and 2010 did not miss out on lending to private individuals. On the contrary. Since 2008, there has been an uninterrupted increase in lending and this is also accelerating.
The reasons for the increasing lending are obvious. On the one hand, the cost of credit literally fell, and on the other hand, wages and salaries for workers rose in the same period. The annual very low inflation rate, which has also been very low in recent years, has ensured that real income has risen accordingly.
The “right times” for loan financing are continuing
The right time for planned financing by means of an installment loan has already arrived. The signs indicate that the ideal framework for low borrowing costs and stable to rising incomes will continue for at least a medium-term period. The reasons for this are understandable.
While the US Federal Reserve (Fed) is raising interest rates again – albeit in tentative steps – the Governing Council holds its view that the low key interest rates will have to be cemented at least beyond summer 2019. The declining annual inflation rate is likely to further strengthen the Best Bank ‘s stance. To this end, the economists of numerous institutes agree that above all the wage workers will continue to benefit from the ongoing boom in the labor market. So ideal conditions to finally tackle the possibly delayed financing.
Loan interest rates: The bottom has already been reached
However, the strategy of waiting for further falling interest rates on loans is unlikely to work. Rather, it is true: “If you eat too late, life will punish you”. Although the key interest rate level has been at a stable low for some time, the first surcharges can already be seen in terms of credit conditions. This is partly due to the unwritten market law “supply and demand”. The accelerated increase in the award to private individuals primarily requires the corresponding demand from consumers. If their demand increases, the prices usually rise and, in the case of a loan, it is the interest.
To the detriment of consumers, the German financial regulator Bafin is planning to review the individual banks for the credit guidelines. This primarily affects lending to small and medium-sized companies, but ultimately credit institutions have to calculate the overall economy in-house. Should the bandages be put on, this could also have an adverse effect on the general loan conditions. The Cream Bank would not be immune from stricter regulations within the German credit market.
The conclusion: Since the conditions of an installment loan are tied down at the time the contract is signed, planned investments should not be put on the back burner despite the record low interest rates that are still in place. The “interest rate barometers” are pointing slightly upwards and even loan interest rates that have risen by just a few basis points are simply higher costs in the end.