Thursday, September 19, 2019
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What is a credit-based interest rate?

What is a credit-based interest rate?

What is a credit-based interest rate?

Loans from credit institutions can be issued with a credit rating or credit rating-independent interest. In the case of a non-credit-standing interest, this does not differ from debtor to debtor, as in the case of the credit line in the private customer business (eg your checking account). The interest rate on utilization is generally defined for all customers.

Risk of credit default

Risk of credit default

However, credit ratings differ and thus also the risk of credit default for the bank. At the same time, creditworthy borrowers have a lower credit default rate, while low credit ratings are more likely to lead to defaults. Different credit ratings are taken into account when lending and thus influence interest rates. To determine your creditworthiness, a credit check is carried out. A credit-based interest rate is thus customary in the market. As a result, a high credit rating results in a lower interest rate and a low credit rating results in either a correction of the interest rate upward or the rejection of the loan. You should therefore look in advance to see if and how you can improve your credit rating.

 

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