The difference between banks’ offers can be up to one-eighth of the total loan price. The Bank of Lithuania indicates that currently the average interest rate for loans for the purchase of housing in Lithuania is 5.44 percent. These interest rates consist of the EURIBOR set by the European Central Bank and the bank margin, which is set individually by each credit institution.
It is noticeable that the number of newly issued housing loans has been growing steadily for the past few months and real estate remains the favorite investment method for Lithuanians, although some are buying their first home. Currently, Lithuanians keep more than 20 billion livres in their current bank accounts. euros, parts of which are possibly being prepared specifically for investments in real estate, so now it is extremely important to understand why banks’ margins and loan prices may differ.
How interest is calculated depends on many factors. This can be influenced by both the fees charged by the lender and the location of the home.
“It is worth noting that when granting a loan, the bank evaluates each case individually. Therefore, the interest margin provided by the bank may vary. It depends on the housing location, price, customer’s solvency and other factors. Margins are reviewed regularly,” says Edvard Arnatkevič, head of the customer relationship management department of the Bigbank bank in Lithuania.
For some creditors, it is a matter of survival
Specialists point out that some creditors simply do not have any major competitive advantage, so they are forced to choose higher-risk clients, which lead to greater losses.
Naturally, customers with poorer credit history are also forced to pay higher interest rates. This helps to offset the losses that such customers may incur as they default and continue to compete with different creditors with different risk appetites.
As with every market, there are different business models
Currently, there are dozens of financial market participants in Lithuania who can provide real estate loans, 34 providers of crowdfunding services and hundreds of consumer credit providers.
The differences between bank loan offers are often quite small with such a choice. The difference between the best and worst offer can also be quite large. This can happen simply because of the credit institution’s business model.
As in any other market, whether it is a catering business or e-commerce, price can be one of the competitive advantages. Some service providers may choose to sell less, but for a higher price and a higher profit, while others try to make a profit by selling as much as possible.
Recently, some banks have also started offering service packages. For example, it is possible to take out a loan with a lower bank margin, but the client must undertake to purchase and use other bank products for a while: open an account, start using a credit card, or other services, which in the long run may result in higher loan costs than an identical offer with, theoretically, with a higher margin, but without the cost of additional products.
Banks have different sources of money
Large commercial banks that open checking accounts for everyday business and personal needs have access to often free additional funds that they can employ for their own purposes. Banks use part of the money held in the accounts for investments, for example, to issue loans.
These are the cheapest funds that generate higher returns. Therefore, it is not uncommon for large commercial banks with many customers to offer extremely competitive financing conditions.
Some banks also operate in several countries and can take advantage of this by borrowing in a country with lower deposit rates and moving those funds to lend in another country.
“It is very important to contact not one, but at least several or even all the creditors issuing housing loans. This will allow you to compare their offers and get the best one and save thousands of euros”, concludes E. Arnatkevič.
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2024-08-11 19:48:23