Consumer protection
The Federal Council changed the consumer credit legislation on 11th December 2015. The federal authorities want to increase the protection available to borrowers to prevent them from becoming overindebted with a lowering of maximum credit rate from 15% to 10%. This decline does not appear to be necessary for the protection of consumers since there are already strict measures:
- Regulations set by the Law on Credit Consumer.
- Rigorous control of the solvency of the applicant by the bank.
Profitability of financing institutes
The credits represent a risk for banks because they advance money that consumer have not already yet. To take a loan whose repayment is guaranteed by an uncertain future, they must obtain guarantees from
:
- Verification of financial and professional situation of the applicant for consumer credit services.
- Concrete evidence of the solvency such as payslips and a certificate from the Office for prosecution.
Only after confirmation of the solvency of the applicant, the bank put their trust for a consumer credit. Moreover, the rate of allocation of funds is small compared to the number of requests.
What is the cost of consumer credit ?
The interest rate determined by the bank includes two types of costs incurred by the financial institution :
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- Operating cots, as administrative management.
The fixing of the interest rate determined by the bank includes two types of costs incurred by the financial institution:
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- Operating costs , as administrative management.
- The cost of risk , namely the fact to pay a sum of money that the consumer will have in the future.
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How to ensure the coverage of the bank costs with the decrease of credit consumer rates ?
The bank costs, necessary for a smooth running of financial banks, are fixed. What will happen in case of decrease in rates ? To continue to cover the costs, bank will seek other funding solutions to enter their expenses. There could be for example :
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- The costs of setting records.
- The increase in the credit period.
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The decrease in interest rates for consumer credit services decided by the Federal Council in December 2015, is not seen as a necessary tool to protect debt for consumers.
Advice for credit applicants
Should we wait for the entry into force of the new interest rate for consumer credit before making a credit application ? The best is to use a specialized adviser.
Our partner Multicrédit, for example,
may suggest a complete analysis of your situation and your borrowing capacity.
