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Borrowing money to buy new car may become more expensive

November 20, 2023

Increase in interest

“The maximum interest rate that providers may charge on consumer credit – or the maximum credit fee – will rise from 14% to a maximum of 15% on January 1. Borrowing money, standing in the red and buying on installments may become more expensive as a result,” the central government said.

This increase is due to the proposed increase in the legal interest rate from 6% to 7%. This statutory interest rate is part of the maximum credit allowance. Increase or decrease in this legal interest rate thus affects the maximum credit allowance. The legal interest rate is linked to the European Central Bank’s (ECB) interest rate. With higher interest rates, the ECB is trying to curb high inflation. The ECB has continued to raise interest rates over the past six months.

Accruing interest

The Ministry of Finance warns against taking out loans too easily. “Sometimes it’s very tempting to take out a short-term loan to cover a big purchase or an unexpected expense, for example. But because of rising interest rates, you end up being more expensive. With financial guidance and programs that point out the dangers of being in the red and borrowing too easily, the ministry is providing education,” said Central Government.

Maximum credit allowance

The maximum loan fee consists of 2 parts: the variable statutory interest rate and a maximum mark-up. With the increase in the legal interest rate, the total maximum loan fee is now also going up. The maximum markup offers lenders an opportunity to price default risk, cover costs and earn a return. That surcharge was reduced from 12% to 8% in June 2022 and remains so.