When applying for a consumer loan, no one is surprised that the loan has to be repaid, with interest. Loan providers have several different interest rate options available and the consumer credit interest rate depends on the loan product. Interest rates on consumer loans can range from minimum to maximum. It is good to compare consumer loans especially because of interest rate differences. And it is not denied that, in the case of consumer loans, the terms of the loan are also varied, depending on the type of loan, so comparison plays an increasingly important role. Just by comparing, you can find a loan product that suits you as well as a loan that has an interest rate that fits your budget.
Interest rates are generally currently low, but future interest rates are difficult to predict. On the other hand, it has been estimated that interest rates will slowly increase, at least for mortgages. It remains to be seen how interest rates on unsecured loans go. However, in the case of consumer credit, increased competition will bring its own premium, which will contribute to a moderate rise in interest rates.
The article discusses interest rates on consumer loans and their future prospects. In addition, we will explain how interest rates are determined and, in this context, introduce a lot of the Credit scoring system used in lending.
Instant leverage and consumer credit – interest rates under control
About ten years ago, instant lashes and various consumer loans hit the market at high interest rates. Instant Lips and Consumer Loans were applied for by the monkey rage, and even then, it was possible to get a consumer credit or Instant Lever via text message only. The high interest rates on instant loans and consumer loans were reflected in payment failures and an increase in payment defaults. Instant Leverages, in particular, sparked a rather negative debate, but loan products under the name of consumer credit were no better. The authorities woke up to interest rate problems and they were keen to get the quick west into the wild west. As a result, an interest rate cap was set for short-term loans and consumer loans in 2013.
As a result of the change in law, the effective annual interest rate could only be 50% plus the reference rate. Before the change, interest rates could be as high as 1000 percent, which meant that the loan amount could increase by up to 10 times in a year. Key Pillars of the Ceiling Act:
- The effective annual interest rate for a loan of less than USD 2000 may be 50% + the reference rate.
- The annual interest rate includes all costs related to the loan; the opening fee, the loan withdrawal fee and the annual fee.
- Paid SMS was banned.
- No consumer credit or instant nipple may be granted during the night time from 23-07.
- Obligation for the lender to establish the applicant’s creditworthiness – credit history.
The interest rate cap introduced by the change of law was adjusted to cover instant loans and consumer loans up to USD 2,000. In other words, unsecured loans of less than USD 2,000 had to comply with an interest rate cap regulation. As a result of the interest rate cap, many of the smaller players ceased altogether because they were based on interest income. Stronger players in the unsecured loan market, on the other hand, came up with tailor-made new loan products, transforming consumer credit into flexible loans and credit lines.
The idea behind flexible or credit limits is to give a customer a credit limit of, for example, USD 2,500. Within that amount, the consumer can make appropriate withdrawals. Withdrawals can be as much as USD 200 or USD 500 at a time. The interest rate cap does not apply to flexible or overdraft facilities and the law does not otherwise apply to unsecured loans over USD 2000.
Determination of interest rates on consumer credit
Interest rates on consumer loans depend on the amount of the loan and the type of loan. In addition, the interest rate will of course be influenced by the lender. The customer has the opportunity to get a lower interest rate if his / her credit profile is good. A customer with a good credit profile usually fills in the following points: credit information is clean, good, regular income, pays off on time, and the loan amount is proportional to the customer’s other information, such as income level.
This point is about credit scoring in the lender’s language. Credit scoring is a scoring system used by companies engaged in consumer finance. The system is based on predetermined issues and previous credit applications. The scoring system is used because consumer credit companies rarely meet customers face to face and the number of applications is high. Each lender uses some degree of credit rating in customer segmentation, and one of them is a simple Credit scoring method. Of course, you will not get the final information on the interest rate until you have received the loan offer. Of course, credit scoring is something that lenders don’t want to talk about openly, because everyone has different criteria for doing so.
Some lenders base their interest income on fixed rates, while other lenders use variable and variable rates. Other lenders have to offer borrowers a so-called carrot, for example, when applying for a larger loan amount, the interest rate may be lower.
If you currently have a consumer credit or other instant credit, the projected rise in interest rates will not affect instant loans. Of course, it is a good idea for a discerning consumer to be aware of what is going on in the interest front if, for example, you are about to get a mortgage or other secured loan.
Current interest rate on consumer loans
The market situation largely determines the level of interest rates. The interest rates on loans linked to international reference rates vary according to their market conditions. Unsecured loans and other larger loans such as a mortgage or car loan are usually tied to reference rates. The interest rates on consumer loans and quick fixes are generally higher than, for example, secured loans and loans. This is because there is no need for collateral or guarantors to obtain an unsecured consumer loan or instant loan that would be realizable in the event of a problem. In addition, interest rates are generally fixed and based on the interest rate set by the finance company itself.
Annual interest rate is always a good indicator of consumer credit, which can be used to assess whether it is expensive or inexpensive. In addition, it is a good idea to consider the processing and other additional costs before approving a consumer credit. Interest rates on consumer loans now range from 5% to 20%.
According to statistics compiled by the Bank , in March 2017, the average interest rate on unsecured consumer loans was 4.97 per cent.
Interest rates are projected to rise slightly. It remains to be seen what happens to interest rates on consumer loans. Competition in the upswing will curb the explosive rise in interest rates and other costs. Unsecured consumer loans will definitely want to compete with secured bank loans if and when interest rates go up – one of the competitive advantages of consumer loans is that they are able to influence the interest rates themselves. In addition, new legislative initiatives in preparation are also a challenge for interest rates. Going through the bill, of course, could also bring about changes in consumer credit interest rates.
Consumer credit interest rate – the future
In spite of the stagnation of years ago, consumer loans and instant loans have started a new boom. Incentives for interest rates have brought about a change, though not exactly desired. From old consumer loans to customized flex and overdraft. The biggest threat now is for professionals to see consumer credit and instant advertising – which can be blatant and tasteless. Here is the next thing we want to cut and limit in the future; how to promote consumer loans and instant tips in the future. In addition, the Consumer Ombudsman has tabled a bill which hopes that the ceiling on interest rates in the future will be extended to all consumer credit, whether it is instant credit or a consumer credit of more than USD 2,000.
The popularity of unsecured loans is on the rise. In spring 2017, according to the Financial Services, one in four people had some amount of consumer credit. The renewed rise in popularity of consumer credit is bound to be accompanied by an increase in competition between short-term and consumer credit. Tougher competition is good for the consumer as it brings down interest rates and costs. Nowadays, there are more consumer loans available than ever before, and the good thing is that alongside consumer loans and instant nipples, comparison service sites have compared the cost and interest rates of loans to help the borrower find the right loan product.
If interest rates and charges on consumer loans continue to fall and there are no other excesses, their popularity will surely remain. It is a firm belief that unsecured consumer credit and instant leverage have become part of our changing society. Like virtual currencies, consumer credit certainly wants to play a part in destabilizing the bank’s financial policy.