Unfortunately, it is sometimes not so easy to find a loan with really low interest rates: this is because the interest rates for installment loans, small loans, personal loans, car loans etc. are generally not fixed, but depend on different factors: for example on the creditworthiness of the borrower or, more rarely, the amount of the loan.
Interest based on creditworthiness
If a bank advertises a loan with a certain interest rate, in most cases this is exemplary interest, calculated for a very good credit rating of the borrower. Interest rates dependent on creditworthiness mean that the interest rate deteriorates the more negatively the bank assesses the creditworthiness of the borrower. This can lead to the fact that a loan that initially appeared to be cheap can ultimately become far too expensive in comparison.
The creditworthiness itself is based on various factors. An important point is of course the income or the amount of the income and the type of employment, i.e. whether the borrower is an employee, official or self-employed. The self-employed sometimes find it difficult to obtain cheap loans, and civil servants and employees cut off in the eyes of the banks, or at least a sufficient amount of income and a positive budget account.
Interest is based on the loan amount
This can also be found in everyday banking: the interest rate is no longer based on the creditworthiness of the borrower, but on the loan amount. This means that the higher the loan amount requested, the higher the interest rate. This is not to be confused with the phenomenon that interest rates seem to decrease as the term is extended – for some borrowers this is an occasion to agree longer terms than necessary, which is of course a dangerous decision: longer terms mean even with possibly lower interest rates increased total cost to the borrower.
It is important to use a loan calculator to compare interest rates, which firstly uses the current figures for the respective offers and secondly includes the factors of creditworthiness and, if applicable, the amount of the loan. By the way, it is more difficult to compare loans in the case of construction finance or real estate finance – there are even more factors and opportunities for individual design. Key points would be, for example, special repayment rights, fixed interest rates, estimated costs, etc.