11 billion lost: loan interest rates too high

Millions of citizens pay significantly more interest on installment loans than necessary. A study shows how many billions are being given away and how borrowers can get favorable conditions.

Based on Bundesbank data, the comparison portal Verivox has evaluated all installment loan agreements in Germany since the beginning of 2022 – with the result: consumers could have saved over 11 billion euros in interest since then.

In the past two years, Germans have increasingly taken out installment loans. According to current data from the Bundesbank, the volume of new installment loans concluded between January 2022 and the end of March 2024 totals a remarkable 235 billion euros.

The Bundesbank's statistics provide a detailed overview of monthly new business and the development of the average interest rate for this type of loan throughout Germany.

In January 2022, just a few months before interest rates rose across the board, borrowers had to pay an average of 5.54 percent interest. Much cheaper interest rates would have been possible in the same period. This is shown by a comparison with Verivox data.

Borrowers on the comparison portal benefited from significantly lower interest rates in January 2022: on average, they paid just 2.98 percent for their installment loans. If all consumers in Germany had taken out their loans at this lower interest rate, with a Germany-wide new business volume of 8.6 billion euros, there would be savings potential of 646 million euros for January 2022 alone.

Interest rate differences of varying amounts also occurred in all subsequent months. Since the beginning of 2022, German installment loan borrowers have missed out on savings potential of between 180 and 738 million euros month after month.

In April 2024, the last month analyzed, consumers could have saved around 343 million euros in interest on their loans. Over the entire study period, the calculated lost interest savings total 11.13 billion euros.

The gradual increase in key interest rates by the European Central Bank over the past two years has led to consumer loans becoming significantly more expensive, explains financial expert and Verivox Managing Director Oliver Maier.

These interest rate increases have affected the entire economy, including interest rates on real estate loans and bank loans. Existing loans with variable interest rates have also become more expensive for borrowers due to the higher base rates.

“Consumers could easily have avoided several billion in additional interest costs. Those who compare loan offers do not pay more than necessary,” says Maier.

There are several ways to find out about favorable loan conditions. Firstly, you can compare the offers of different banks via loan comparison portals on the Internet such as Verivox, Finanzcheck or Smava. There, borrowers can quickly get an overview of available interest rates and other conditions, such as repayment.

On the other hand, you can also compare loan offers from traditional branch banks with those from direct banks. Direct banks often offer cheaper interest rates because they have lower operating costs.

Other ways to get favorable loan terms are:

• Earmarked loans: Some banks will give you a better interest rate if you specify the purpose of the loan. Banks may offer a discount for a car loan, for example.
• Loan term: You can influence the level of your interest rate and thus the total cost of the loan by choosing the term of the loan. The shorter the term, the lower the interest rate is usually.
• Debt restructuring: Refinancing an old, more expensive installment loan to a new installment loan with more favorable terms can also save a lot of money. However, the prerequisite is that the old loan can be paid off in one go without penalty costs from the bank.
• Flexible repayment options: Some banks offer better terms if your installment loan includes options such as special repayments or payment breaks.
• Second borrower: Specifying a second borrower with their own regular income can increase the chance of a loan being approved and lead to lower loan interest rates.

“If there is a second borrower, both applicants are jointly and severally liable for the loan,” explains financial expert Maier. “If both people have an income, the joint loan application improves their creditworthiness. From the bank's perspective, this reduces the risk of default and enables them to offer a better interest rate.”