take out credit? Why financing can now be cheaper – guide

If you want to fulfill your dream of a new sofa, fitted kitchen or car and are saving for it, you shouldn’t do it. You can now finance your wishes much more cheaply with a loan.

BILD spoke to Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH, about how you end up paying less when you take out a loan than when you save.

Why am I now paying less with a loan?

If you are planning a major purchase and do not have the money in your account, you can either finance the purchase with a loan or save the money you need over several years.

However, persistently low interest rates are currently being combined with very high inflation. For the current year, the Bundesbank forecasts an inflation rate of 3.6 percent.

Oliver Maier: “Anyone who takes out a loan often pays significantly less interest than the money borrowed loses in value due to ongoing inflation.”

How much do I end up paying on a loan?

Anyone who finances a used car worth 15,000 euros with a car loan at an average interest rate of 2.39 percent pays back a total of 15,919 euros to the bank over a period of 5 years. But with constant inflation of 3.6 percent, this sum would only have a value of 13,339 euros at the end of the term. Measured against today’s purchasing power, borrowers would repay 1661 euros less than they received.

These four financing models illustrate what the combination of low interest rates and high inflation means for borrowers:

new sofa New fitted kitchen used cars new car
Credit amount 2500 Euro 10 000 Euro 15 000 Euro 36 000 Euro
purpose of use free use free use Car Car
duration 2 years 4 years 5 years 7 years
Medium interest rate 2,99 % 2,99 % 2,39 % 2,39 %
total cost 2578 Euro 10 614 Euro 15 919 Euro 39 096 Euro
value at maturity 2402 Euro 9214 Euro 13 339 Euro 30 522 Euro
gain in purchasing power 98 Euro 786 Euro 1661 Euro 5478 Euro
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This was calculated by Verivox assuming an average interest rate of 2.99 percent or 2.39 percent for a car. But if you compare well, you can get a lot cheaper.

Can retirees benefit too?

It is a misconception that seniors can only take out a loan with difficulty or only on less favorable terms. The opposite is the case.

Oliver Maier: “Borrowers of retirement age are no longer threatened by possible income losses due to job loss or short-time work. They receive their crisis-proof payments from a pension fund. This reduces the risk for the bank that the loan will not be repaid and it can offer more favorable conditions.”

Here are four model financing options with an average interest rate of 2.92 percent or 2.38 percent for seniors aged 65 and over:

new sofa New fitted kitchen used cars new car
Credit amount 2500 Euro 10 000 Euro 15 000 Euro 36 000 Euro
purpose of use free use free use Car Car
duration 2 years 4 years 5 years 7 years
Medium interest rate 2,92 % 2,92 % 2,38 % 2,38 %
total cost 2576 Euro 10 599 Euro 15 915 Euro 39 083 Euro
value at maturity 2400 Euro 9201 Euro 13 335 Euro 30 512 Euro
gain in purchasing power 100 Euro 799 Euro 1665 Euro 5488 Euro

How much is left over when you save?

But while borrowers are benefiting from low interest rates and high inflation, savers are suffering the most from the current situation.

▶︎ The money saved on the money market or checking account does not earn any interest and inflation should make many consumer goods such as furniture and cars more expensive during the savings phase.

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Assuming annual inflation of 3.6 percent, you would pay a lot more for an equivalent product at the end of the savings phase than you do today:

new sofa New fitted kitchen used cars new car
purchase price today 2500 Euro 10 000 Euro 15 000 Euro 36 000 Euro
accumulation time 2 years 4 years 5 years 7 years
purchase price at the end 2683 Euro 11 520 Euro 17 902 Euro 42 964 Euro
price increase 183 Euro 1520 Euro 2902 Euro 6964 Euro

Should I always take out a loan?

Anyone who takes out a loan often pays significantly less interest than the money borrowed loses in value due to ongoing inflation. Nevertheless, consumers should only take out a loan if they really need it.

Oliver Maier: “Anyone who has the financial means freely available in their account for larger purchases prefers to draw on these reserves first – especially since nobody can reliably predict how inflation will continue to develop over the entire term of the loan.”

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