Bargain hunters are in high season around Black Friday. But anyone who uses the installment financing of the online payment services Paypal or Klarna for shopping risks high fees. This is determined by the comparison portal Verivox. Installment loans from banks are cheaper.
The total cost of furnishing a living room worth EUR 4079 increased by up to EUR 535 due to the installment financing due to the high interest rates. This was the result of a random sample analysis by Verivox. According to the data, the cost of a cheap installment loan is not even half as high.
Klarna charged 12.90 percent interest for a test purchase for installment financing with a two-year term.
A total of 535 euros in interest is incurred for the financing of the sofa set at the purchase price of 4079 euros. For a notebook worth 2500 euros, the interest costs add up to a total of 328 euros under these conditions.
With an interest rate of 9.99 percent, PayPal installment financing is almost three percentage points cheaper. The total costs for financing the notebook amount to 255 euros, for the furniture a total of 416 euros in interest costs are due.
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“Paying in installments via payment services such as Paypal or Klarna is extremely convenient for consumers,” says Oliver Maier, Managing Director at Verivox. The simple reason: In many online shops, these payment options are integrated into the ordering process. Oliver Maier warns: “However, this comfort often comes at a high price. If you finance your purchase with a cheap bank loan instead, you pay significantly less interest.”
The data evaluation shows that the majority of customers get a loan of the required amount at an interest rate of 4.49 percent from cheap banks – sometimes even cheaper.
Compared to financing through Klarna, installment borrowers would save 65 percent on interest costs with an installment loan. Compared to PayPal financing, the saving is 54 percent.
Verivox uses the so-called two-thirds interest rate for its calculations. This mandatory information from the banks is representative of a wide range of customer groups: because two-thirds of all customers receive their loan at this interest rate or even cheaper.
But be careful: Installment loans are not suitable for financing smaller consumer wishes. Most banks only grant installment loans for amounts of 1000 euros or more. If consumers want to pay off purchases of more than a few hundred euros in installments, installment purchases through the retailer can be the solution instead.
Consumers need to know: the PayPal and Klarna payment services only offer relatively short terms for installment payments of two years. This can lead to high monthly charges. The advantage of installment loans is that they allow longer terms.
Consumers can relieve their monthly budget if they use a debt restructuring of their “short-term loan” with a simultaneous extension of the repayment period. In this way, they can reduce their monthly installment payments.
The calculations show: At Klarna, customers pay a monthly rate of 192 euros for the two-year financing of the furniture. After six months, 3150 euros of the original loan amount are still open. If you replace this sum with a cheap installment loan at an interest rate of 4.49 percent and at the same time double the remaining term from 18 to 36 months, you only have to pay 94 euros for the monthly installment – almost 100 euros less than with Klarna financing. The borrower has to repay longer for this, but he noticeably relaxes his monthly budget.
The longer repayment period means that consumers also have to pay interest for a longer period of time. The experts therefore advise: “Borrowers should only agree on longer loan terms if there is also a need to reduce the current budget quickly and effectively.”
The above example of rescheduling results in the following calculation: With the new installment loan, a total of 218 euros in interest costs would be incurred over the full 36-month term. That is 107 euros more than the same loan without an extension of the term would cost. Due to the significantly lower interest rate, the total costs are reduced by 95 euros compared to Klarna financing, despite the extension of the term.
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