Best credit rating does not guarantee cheapest credit
The better the credit rating, the lower the interest on a loan. Many trust in that. This principle is only partially true. As a rule, you get the best interest rate from a bank with the best credit rating. But: This interest rate varies a lot, depending on the bank.
In 2018, the interest rates of banks and credit providers with the best creditworthiness differed on average by 10.74 percentage points (80.95% interest rate difference). Surprisingly, the difference in interest rates is even greater with low creditworthiness. There was even 15.97 percentage points (83.05% interest difference) between the average cheapest and most expensive interest rate.
There are comparably large interest rate differentials not only with the best and low creditworthiness, but with all creditworthiness. This is the conclusion reached by the Fine Bank credit portal after analyzing the offers of interest from 25 banks and credit providers. Regardless of the creditworthiness, this means for all those interested in credit: If you do not compare the loan, you are very likely to pay too much.
Credit comparison can save more than best credit rating
The interest rate differentials are so large that someone with low creditworthiness can find a lower interest rate through a credit comparison than someone with the best creditworthiness who does without a credit comparison. “In many cases, a credit comparison can save more than the best credit rating,” says Alejandro Entrope, Managing Director of Fine Bank. In 2018, borrowers with low creditworthiness were able to take out loans with an annual average interest rate of 3.26 percent or more by means of a loan comparison. Those who decided not to compare their credit risked paying up to 13.27 percent APR despite their excellent creditworthiness.Borrowers with low creditworthiness were therefore able to take out cheaper loans by comparison in 2018 than borrowers with the best creditworthiness who did not make a comparison.
Borrowers with low credit ratings can save the most
Low credit borrowers benefit most from a credit comparison. Because with low creditworthiness, the interest rates differ the most. Last year, the difference between the average cheapest and most expensive interest rate was 15.97 percentage points (83.05% interest rate differential). With a loan of USD 15,000 over a term of 48 months, a loan comparison could save USD 5039.67 (83.38%) in interest.
But even borrowers with the best creditworthiness should not blindly trust that they will get the cheapest offer on the market. A loan comparison is also very worthwhile for them. Because even with the best creditworthiness, the interest rates in 2018 differed by an average of 10.74 percentage points (80.95% interest rate difference). With a loan of USD 15,000 over a term of 48 months, they were able to save USD 3,368.76 (81.24%) in interest by comparing the loans.
About the investigation
1. The creditworthiness provides information about the probability of payment of a borrower. To assess the creditworthiness of a borrower, Fine Bank took into account the individual Credit Bureau scores as well as other information from the borrowers, such as the household net income.
2. The interest rate differentials were calculated on the basis of all interest rates offered by 25 banks and credit providers in 2018 on the Fine Bank credit marketplace. All loan amounts, loan terms and credit ratings were taken into account.