The dangers of a variable interestUncategorized
If you want to obtain the lowest possible base rate today, it is always advisable to opt for a variable interest rate. The reason for this is not too far away. When you choose to take out a loan with a fixed interest rate, the full interest rate risk lies with the bank. In other words, if the market interest rate rises in the meantime, the bank cannot pass on this increase so that it can be burdened with certain losses. If a variable interest rate is chosen, this is not the case and the interest rate risk is actually shared by both parties. After all, in that case the interest may fall, which gives an advantage to the borrower, but it may also rise. The latter, of course, plays into the hands of the lender in question. Would you like to take out a loan with a variable interest rate, but do you want to be sure that you are optimally aware of the potential dangers that this entails? We list all the risks of a variable interest for you.
There are two different types of borrowers. The first borrower is the one that opts for security. However, he (or she) will never choose to take out a loan with a variable interest rate, simply because it is not clear in advance where you can get out. On the other hand, there is also the borrower who dares to take a little more risk when there is a financial benefit in return. In the current economic climate, interest rates are therefore so low that in principle a very rapid and explosive rise is needed to be confronted with a structural extra loss in the medium to long term. For example, even if the interest rate on a loan with a term of between 5 and 10 years rises a few years, there is a very good chance that you will still have to deal with a variable interest rate that is on average lower compared to an interest that is established.
Extra vigilance with multiple loans
Taking out a loan with a variable interest rate, as you have already been able to read, always entails the necessary financial risks. Moreover, these risks naturally only increase when more than one loan is taken out. This opportunity is not non-existent. For example, you can choose to take out a car loan with a variable interest rate, but what about a consumer credit and even a mortgage? If you opt for a variable interest rate with all these different loans, you will ultimately only be able to determine that in the worst case the amount that you have to pay monthly can be several hundred euros more expensive. It goes without saying that this always entails the necessary risks with regard to your financial situation and you will really want to prevent this.
Limits of the interest rate risk
It goes without saying that a variable-rate credit also has certain conditions that must ensure that the borrower is protected somewhat. This ensures that the interest rate difference can never exceed a certain fixed percentage. If this limit did not exist, a loan with a repayment of 250 euros could simply become 500 or 750 euros. The extent to which the monthly payment can rise (or fall) due to the variable interest rate is always determined in the credit conditions. Isn’t there a limit? Then make sure you include the risk of a possible explosive rise in interest rates in your financial situation.