Revolving credit at a low interest rate
Particularly in companies where the old yup or other successful people meet, you often hear: “I have just taken out a revolving credit at a reasonable interest rate”. Not often do you see the recipient of the message make a fairly surprised face, bordering on downright disbelief. The statement often seems to be a contradiction in terms, but it is definitely not.
A revolving credit of a certain amount is more expensive in terms of interest than a personal loan for the same amount. This has to do with a number of factors, which plus and minus the interest rate. For example, it can be lowered because a revolving revolving credit gives the lender a certain amount of income and, precisely, because the actual lending is a bit more risky.
When taking out a revolving credit, it is fairly clear to the lender that the amount that has been agreed is often taken up at least partially. This way he knows for sure that every month he has a minimum amount of interest income from all the loans that he has outstanding. This certainty gives him the possibility to ask less per buyer, because he can still continue to exist from what remains.
It is riskier because a borrower can withdraw money from his credit at times when he would actually no longer be eligible for a personal loan. People are often not required in the terms of their credit to communicate clear changes in their personal situation to the lender. So if they lose their jobs and they take up the part of their credit that has been saved to stay alive, this is often possible.
With most revolving loans, interest rate changes are not difficult. Only in the event of an extreme rise or fall in interest rates will the borrower or lender want to look again at the percentage that is given as a reward for using the money. Most borrowers see this as an advantage because they are exactly aware of the costs they have throughout the entire term. All advantages give the provider an opportunity to increase his prices. The nicer something is, the more we want to pay for it.
On the side of and on the part of the buyer, this can in some cases lead to a period in which the interest that he has agreed is slightly lower than the applicable interest for a personal loan. Understandably, this will never be a major difference or last for long. Again that law of supply and demand.
Measuring is knowing
A brief inventory on the internet of various interest rates currently available for revolving loans and personal loans gives a range of approximately 4 to 5% for a personal loan and approximately 4.5 to 5.5% for a revolving credit.
Attentive readers will immediately see that there is an overlap in this. It is not a lie that a revolving credit always turns out to be more expensive than a personal loan, but due to the differences between the lenders, the credit with provider a can be cheaper than a loan with provider b. In order not to pollute the comparison, due to the differences in the conditions that go with it, we continue to write for both products from 1 supplier in this letter. Requesting quotes – which choice from finally suits you best – therefore remains important.
For the sake of completeness, we want to pay a little attention in this article to the how, what and why of interest in general and that of revolving credit in particular. Interest is currently historically low and perhaps it is still important for a few people to know exactly why that is and what they can do best with their revolving credit on the basis of that knowledge.
The basis of interest in general is the percentage that the Datcho bank, in consultation with the EurCen Bank, determines for transactions between banks. Based on this percentage, the bank knows how much interest they can give to their savers and what percentage they can and may request from their borrowers. For example, if the EB asks 1%, banks will give at most 0.5% and ask at least 2%.
The EB decides the interest rate on the basis of the laws of Keynes, among others, which has established a clear relationship between the level of interest and the buying behavior of the consumer and to date this theory has not been invalidated. If saving does not yield and lending costs practically nothing, consumers are more likely to put their money into personal enjoyment or other investments (for example, gold and real estate). More purchased goods help companies get into the saddle better and that improves the overall economy of a country.
From time to time Keynes seems a bit childish and goes very short in his theories, but as said, he is basically right. The juggling of interest by the central banks of the world can in any case do little harm to achieve the goal of rising or – in the case of scarcity – purchasing behavior. The market that usually first benefits from or suffers from this is the housing market, so that the concerns of the central banks for the consumer are first visible in the interest for the largest loan they will ever take out: the mortgage.