FRANKFURT – Germany is shown the good side of negative interest rates because some online loan platforms pay customers to borrow despite experiencing the sharpest recession since the Second World War.
The European Central Bank’s zero-zero interest rates for bank deposits have long been a source of complaints for German households, who have seen reduced returns from their savings despite being among the most economical and shy of debt in Europe.
But there may be wisdom to those who need cash after the coronavirus pandemic closes many shops, businesses and factories – or those who want to avoid bank branches when they observe social distance rules.
The price comparison website Smava and Check 24 markets a two-year loan with an annual interest of -0.4% – which means the borrower will pay back less than they took.
With each loan limited to 1,000 euros ($ 1,100), this is partly a hoax by two portals, which compensates banks from negative credit.
But it also shows one way in which the ECB’s ultra-easy policies flow from the financial markets to consumers – even if only those who have strong credit scores.
“Some people need to take loans because of financial difficulties, others are afraid to go to the branch so they would rather do it from their couch,” Christian Nau, who runs the Check 24 financial business, told Reuters.
While financial markets fell during the plague, the ECB kept money cheap for banks by offering multi-year loans with negative interest rates and reducing collateral requirements.
It also increased the long-standing purchase of multi-trillion euro government bonds, which has angered German constitutional courts for damaging savers.
According to OECD data, Germany saved 11% of their disposal income last year, compared to 8% in France and only 0.37% in the UK.
But with Germans accustomed to using safe forms of savings, mostly related to government debt, surging demand for bonds caused prices to rise and their yields, or interest, to fall.
However, these steps also make credit cheap enough for Smava and Credit24 to pay off origin banks.
“It is very unlikely that this will be possible if the ECB changes its policy,” Smava chief executive Alexander Artopé told Reuters.
With German specialties, the idea appeared on beer when a group of friends lamented the luxury of the ECB negative level in the summer of 2017.
“We think it’s crazy but that also gave us ideas,” said Artopé.
Since then Smava has lent more than 27 million euros ($ 29.59 million) at prices as low as minus 13% during a marketing campaign in March. Check 24 has been lent to “more than 100,000” borrowers at negative rates, according to Nau.
However, consumer activists say borrowers may pay an intangible price for their credit when they submit information such as their income, financial situation and bank statements.
“The data is worth gold and therefore prices are quite high for consumers, no matter how tempting offer rates,” said Kay Goerner, legal counsel at the consumer advocacy group Verbraucherzentrale Sachsen.
(Additional reporting by Valentina Za in Milan and Jesus Aguado in Madrid; Editing by Alison Williams)
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