What drives interest rate changes?
Variable interest on a home loan or lease usually consists of two parts: the bank margin and the EURIBOR rate. The bank’s margin is a fixed amount determined by the company’s lending policy and the client’s risk, while the EURIBOR portion changes from time to time.
When concluding financing contracts with residents, financial institutions usually offer to choose 6 months. period EURIBOR rate. In some cases, both a shorter and a longer term rate may be offered.
In the last decade, thanks to the ECB’s stimulatory monetary policy, money was “cheap” in the market, and financial market participants could borrow it at practically zero interest. This was also reflected by the negative EURIBOR indicator, which prevailed practically all this time. And holders of mortgages, leasing and other credits with variable interest rates could ignore this interest component for many years.
With record inflation in the euro area and the ECB beginning to change its monetary policy direction, the EURIBOR indicator has reasserted itself. Having risen above zero at the beginning of this summer, in September (9th) for 6 months. EURIBOR exceeded 1.4 percent. limit. The further trajectory of EURIBOR will depend on how quickly and how strongly the ECB decides to raise base rates in the near future.
How can the average premium change?
However, the impact of rising interest rates on customers with leasing contracts should not be very significant for the time being – it will range from a dozen to several tens of euros.
According to Swedbank’s data, when concluding leasing contracts for the purchase of a new car, residents borrow 21 thousand on average. amount of euros. On average, they choose to pay off a car loan within 5 years. Before the EURIBOR rate began to rise, the monthly lease payment for a purchased car was on average about 370 euros.
Currently, when 6 months EURIBOR interest has reached 1.44%. (September 9), such a leasing payment would amount to about 385 euros. If the variable interest rate were to increase to 2.5 percent, the average lease payment would increase to approximately 395 euros. And the monthly payment would reach the limit of 400 euros if 6 months. The EURIBOR indicator would approach 4 percent.
As the amount of the leasing payment changes, residents are advised to ensure that there are sufficient funds in the current account from which the liability payments are debited on the payment date. It is also advisable to review the established payment limits so that you do not have to worry about whether the contributions will be paid on time. Timely payments contribute to a good credit history and lower margins for future loans.
The premium will gradually increase
An increase in the monthly lease payment of 15-30 euros should not cause significant financial stress for residents who purchased cars on installments. According to Swedbank data, the leasing payment is usually around 15 percent. monthly income of the resident.
Residents who are currently considering the purchase of a new car should consider the fact that the EURIBOR rate will tend to increase in the coming years, so the monthly payments for the car will gradually increase.
To at least partially offset the effect of the EURIBOR increase, residents can choose environmentally friendly cars, which are subject to a more favorable margin than conventional cars. When driving such cars, the savings effect can also be achieved due to lower operating costs.
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