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The Euro Lend is a fundamental word in our lives, although it is not always well known what it is. Of course: more or less everyone is clear that the lower, the better. In this article we explain exactly what the Euro Lend is, where we come across it, what consequences it has and what financing alternatives exist for those who want to avoid it.
The Euro Lend is actually an acronym for Euro Interbank Offered Rate and is an index that tells us what is the average interest rate that is assumed at the time of lending money among themselves the 26 leading banks in Europe, with some ‘guest’ extracommunity. It is therefore a good value to get used to the idea of what price banks are lending, and in fact it is accepted by all banking entities as a benchmark.
Therefore, it should be noted that this is a market interest rate, not a public one, since it is not established by the European Central Bank, but is determined by the action of private banks . This clarification is important, as we will see later in this article.
To what loans is the Euro Lend applied?
The concept of Euro Lend is associated, almost indissolubly, with mortgages . Even today, the most common (and often cheapest) way to establish the interest rate of a mortgage loan is calculating the Euro Lend + a differential: 1%, 2% or whatever the bank wants. This is what is called the variable interest rate, because not every month or every year is the same, since it depends on what the Euro Lend rate is: in July 2008 it reached historical peaks (5.3%) while at mid-2015 reached record lows, around 0.16%.
However, the Euro Lend is also the reference index for many other credits . In fact, any loan made by a bank can and usually is subject to Euro Lend, to which a differential is applied . Business loans, including those granted through the ICO, are among them.
Also personal loans usually take the Euro Lend as a reference. And here, variable interest rates can take many different variants. For example, with a fixed rate the first year and variable from the second, with the aforementioned Euro Lend + differential system.
Disadvantages of the Euro Lend
There are several reasons why we can have some respect for Euro Lend. The first one is that it is a very variable and unpredictable index . In the years of the crisis, it remained at very low percentages, but no expert has the key to know if it will rebound strongly or continue with a downward trend. And these ups and downs can often occur quickly and suddenly, with abrupt changes in a matter of months, as occurred in the second half of 2012 after reaching the aforementioned historical maximum.
Another issue that worries many sectors of society is the opacity that exists in the process of calculating the Euro Lend. In fact, some associations talk about manipulation of the index according to the interests of the big banks, and the European Commission has already established millions in fines to some of the entities participating in this calculation due to irregular practices in this regard.
On the other hand, a criticism that is established to this method is to keep the Euro Lend low can be a subliminal deception, because the final interest rate is often expensive with high spreads . In fact, it is precisely in the personal loans of traditional banks where the Euro Lend is usually higher, with Euro Lend rates + 10% or more.
Alternatives to credits with Euro Lend
Now that we know what the Euro Lend is and what are its disadvantages, it is time to know the alternatives. Because there are. One of them is that of loans with a fixed interest rate . And we started to see it more and more in mortgages: this financing option used to be the most expensive, but the offer from banks is expanding and its price is decreasing more and more.
The option of private lenders is there, but we have already explained in other articles its drawbacks: less reliability due to the scarce references that can be found about them and their sometimes excessive profit motive, which implies really high interest and commissions.
If you are looking for short-term financing and for moderate amounts, online personal loans such as Good Loan are an interesting option, perhaps not for large investments but for unforeseen expenses: your interest rates do not fluctuate as you can The Euro Lend and access to them is practically universal, unlike bank loans that are subject to study and that makes many people can not access the credits without payroll.