In June, interest rates on term loans fell to 6.75 percent, the lowest level in a year. Compared to May, interest rates fell by 0.14 percentage points and from December 2023 even by 0.52 percentage points. However, in the long term, term loans remain expensive, as shown by an analysis by Verivox.
Loan interest rates hit a one-year low
Borrowing is becoming cheaper again. The average interest rate for installment loans through Verivox fell to 6.75 percent in June, 0.14 percentage points lower than in May. In June 2023, interest rates were at a similar level: 6.70 percent.
Fall in interest rates since December last year
In the long term, installment loans remain expensive. In February 2022, banks only charged an average interest rate of 2.89 percent. Back then, consumers paid around 1,500 euros less interest on a typical five-year loan of 15,000 euros than they do today. Since December 2023, however, interest rates have been trending downwards and have fallen by 0.52 percentage points. “The days of rising interest rates are over. With the new one-year low, the trend of recent months in installment loan interest rates is continuing,” says Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH. “Today, loans are on average around seven percent cheaper than at the end of last year.”
Consumers are getting loans more easily again
However, a further significant reduction in interest rates on short-term loans is not expected in the near future, as the European Central Bank's key interest rate cut at the beginning of June is already included in the banks' conditions. “However, lenders could now relax their loan approval criteria somewhat. We are already seeing this with some banks,” Maier reports. “This, together with the lower interest rates of recent months, means that consumers can now more easily finance major purchases and investments with a loan. This is good news for domestic demand and private consumption in Germany.”
Long-term interest rate outlook
Whether interest rates continue to fall depends on the progress of the European Central Bank in combating inflation. “Inflation has recently proven to be persistent. The rise in the inflation rate in May has made a further cut in key interest rates in July less likely,” said Oliver Maier. “However, price increases slowed down again in June. If the inflation rate continues to move towards the target level of just under two percent, interest rates are likely to fall further in the future.”
For consumers planning larger purchases, it is advisable to look out for flexible payment options. Many banks now offer special free repayments for installment loans, so that they can be refinanced at any time if interest rates fall.
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methodology
The analysis is based on approximately 300,000 loan applications from Verivox. The average interest rate on installment loans for the respective month was assessed, which is representative of consumers with average creditworthiness. The status of the assessment is June 20, 2024.