Take out a loan at retirement age? No chance – is a common misconception. But the banks are moving and a Verivox study shows that an installment loan is even cheaper for seniors over 65 than for younger people.
Banks are rethinking: While it was difficult for seniors to take out a loan a few years ago, German citizens over the age of 65 are currently only paying an average interest rate of 2.85 percent for their desired loan, according to Verivox. On the other hand, all consumers who requested an installment loan via the comparison portal in 2022 received an average loan offer at an annual percentage rate of 3.19 percent. This means that retirees got their loans on average 11 percent cheaper than the overall average of all borrowers. All installment loans that were applied for via Verivox up to and including May 2022 were evaluated for the study.
According to Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH, seniors are an attractive group of customers for banks, especially in economically tense times. “Unlike many people in working life, they are usually no longer threatened with job losses, but receive their income from a pension fund in a crisis-proof manner,” he explains. From the bank’s point of view, this reduces the risk of non-payment and it can therefore offer the loan at lower interest rates.
Comparison: Here you will find the cheapest installment loan (display)
The fact that older people hardly have a chance of getting a loan is a misconception, as figures show: Two thirds of all seniors who request a loan through Verivox receive at least one financing offer from a bank. At 66 percent, the average offer rate for those over 65 is almost as high as that of all those interested in credit (68 percent).
The Verivox study also shows that senior citizens are now taking significantly more time to repay their loan. The average term of senior citizens’ loans has increased from 55 to 68 months in the last five years and is therefore even slightly higher than for Verivox customers as a whole. If you have more time to repay, you can finance a higher loan amount with the same monthly rate. As a result, the average loan amount from older people has also increased by over €5,000 over the same period (from €12,293 in 2018 to €17,407 in 2022).
“Many banks have tailored their lending guidelines to the needs of older people in recent years,” says Verivox expert Maier. But there are limits here too: “Loans from many financial institutions still have to be paid off by the 75th or 80th birthday at the latest,” says Maier. But within the framework of these age limits, longer loan terms and higher loan amounts are now also possible for most institutions.
Important when calculating a loan: Longer loan terms also mean longer interest payments, which ultimately increases the total costs. This shows a simple calculation example: If you take out a loan of 17,000 euros at the average Verivox interest rate for seniors (2.85 percent) and repay it in 4 years, you have to pay an installment of 375 euros every month. With a loan term of 6 years, the individual monthly installments would be 118 euros lower, but over the full term the interest costs add up to 1,495 euros. That is 501 euros more than borrowers would have to pay for a 4-year loan (994 euros).
Nevertheless, borrowers should never push the limits of their financial resilience to the full. After all, they have to be able to afford the installments for their loan over the entire term. “Anyone who takes out the loan with a slightly longer term pays a lower monthly rate and thus still has leeway in the household budget for unexpected expenses,” says Oliver Maier. “If the surpluses are not needed, consumers can use them for a special repayment.” That saves interest and the loan is paid off more quickly. Many banks allow such special repayments out of sequence without incurring any additional costs.
All installment loans that were applied for via Verivox in 2022 (until the end of May) and 2018 were evaluated for the study. For the interest rate analysis, the cheapest financing offer received was taken into account for each loan request and the median value was formed from all these offers. It is representative of broad customer groups. Half of all prospective borrowers received this or a lower interest rate. Customers over the age of 65 were assigned to the seniors group.
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