Over the past few years, the consumer credit market has undergone a huge transformation. At the root of this change is the new limitation of the ceiling of the interest rate which entered into force in 2016. With this law, the upper limit of the interest rate has gone from 15 to 10%. This is to prevent over-indebtedness. Since then, banks have all been entitled to ever lower credit. Discover the evolution of the market since 2015.
Lower and lower
While only three banks had to cut their interest rate cap, they all opted for the lowest possible rate strategy. Prior to the entry into force of the limit, the minimum rates did not fall below 5.9%. Today, there is a real downward trend. In 2017, most banks granting consumer credit offered minimum rates of around 4.5%. The record low rate touched 3.9%. However, while the minimum rates are lower, the average rate sold touches higher points. Only 15% of loan applicants get rates between 4.5% and 6.9%. Today, there is a new decline. The average is currently between 6.9% and 8.9%.And more than half of consumers obtained a rate between 9% and 9.95% between July 2016 and the end of 2017, down by 3 points compared to the average before the new restriction but very close to the maximum limit imposed.
Where to compensate?
The drastic drop in rates implies a rebalancing in other fields. The durations in months have been expanded in recent years. Previously, obtaining a loan spread over 120 months, for example, was complicated. Today, this type of duration is increasingly allowed in practice, generating more interests.
The same goes for the amounts. The limits of 100,000 or 250,000 USD are becoming less and less rare, following the example of Cembra, which went from a range of amounts between 500 and 80,000 USD in 2015 to a fork from 1,000 to 250,000 USD.
For the consumer, these market transformations do not translate into lower costs, but rather into lower risks, since if the rates are lower, the repayment periods will tend to be longer, which implies a greater number of months. However, with lower monthly payments, the debt risk is less. The determination of customers’ risks and earnings is also facilitated by the wider range of amounts. Other laws established in 2016 help prevent over-indebtedness. Aggressive advertisements are no longer authorized and the term for a right of withdrawal has doubled from 7 to 14 days. Thanks to responsible credit, brokers and bankers are now also required to take risks into account in the event of financial contingencies.