Irish banks charge much higher rates on personal loans than the rest of the eurozone
Irish banks are charging rates on personal loans far higher than in the rest of the eurozone, figures showed on Wednesday.
The average interest customers pay here on borrowed money is 7.49% – well above the euro zone average of 5.06%, according to Central Bank statistics.
It comes as the Cabinet rushed to revise its home energy credit on Wednesday night as soaring inflation put increasing pressure on families.
The document is expected to drop from €100 to between €150 and €200, as the Cabinet meets on Thursday to counter growing public anger over the cost of living.
It also emerged that Irish homeowners are leading the European league when it comes to high mortgage rates.
In addition to high personal loan rates, the average new mortgage rate in Ireland is 2.69%, more than double the eurozone average rate of 1.29%. And there is little respite for households as the high cost of borrowing will hurt those hoping to take advantage of the government’s home energy efficiency scheme, with an increase in renovation loans expected.
John Lowe, founder of financial advisers Money Doctors, said the interest rate on personal loans was even worse in certain sectors of the economy.
Mr Lowe said: ‘7.49% is the average’. With banks, for a car loan, you would pay 10% or 12%.
“I think there’s an apathy, we don’t have time to start shopping, we don’t have time to see if there’s a better option.
‘Life is fast. You have a priority, and the priority is not to find a decent auto loan rate or a decent personal loan rate. People don’t care about the rate as long as you get the money. People just accept the scam.
A renovation loan of €20,000 over ten years at the average rate of 7.49% in Ireland would cost almost €235 per month. But at the average eurozone rate of 5.06%, the repayment is around €212 per month, a saving of €276 per year.
Daragh Cassidy, from price comparison website Bonkers.ie, said: ‘In other words, Irish consumers would be paying nearly €2,800 in extra interest over the life of the loan. Most of the focus lately has been on high mortgage rates. But personal loan rates in Ireland are also far from the eurozone average.
Even with the new government aid for renovation, owners still have to finance half of the costs themselves.
Mr Cassidy added: ‘I think there will have to be a lot more focus on high lending rates.
There has been a surge in personal loans, with 39,803 loans worth €344m drawn in the last three months of last year, averaging just over €8 500 euros each.
The number of loans increased by 35% compared to 12 months earlier with 11,906 personal loans for home improvement and 10,201 for car loans. The loaned money was evenly split between the two with a small amount for other reasons, according to figures from the Banking and Payments Federation.
The cost of the loans was described as “very expensive” by Brendan Burgess of Askaboutmoney.com, who added that people were being “ripped off on both sides” by the banks.
“It’s very expensive, and it’s just very difficult for banks to collect it.” If you take out a loan and repay it, you also repay the loans of half the people who don’t pay.
“We don’t take action against defaulters in this country, which is why there are very high rates for credit cards, for loans.
“That contributes to some of the high mortgage rates, but it’s only a small part of it. Our banks are now starting to charge customers for deposits and they charge the highest mortgage rates in the Eurozone. In other countries they pay a little for deposits. So we’re ripped off on both sides, absolutely.
Ireland has reclaimed the unenviable position of having the highest mortgage rates in the eurozone of 19 countries, according to Central Bank figures.
Even at 2.69% in December, the average interest rate is again the highest, followed by Greece at 2.55% and Latvia at 2.26%.
Mr Cassidy added: ‘The decline in mortgage rates over the past year is obviously welcome and the overall trend is down, albeit very slowly.’ However, it is still deeply frustrating that rates here remain so high compared to our Eurozone neighbours… According to Eurostat Irish housing costs such as rent, mortgage rates, gas and electricity are 78% above the European average.
In the meantime, in much-needed good news for households, the €100 electricity subsidy will be increased to between €150 and €200 on Thursday. Tánaiste Leo Varadkar said late Wednesday that a broader anti-inflation strategy would be needed to help struggling families.
Legislation for the €100 grant was passed in the Dáil on Wednesday evening. The total amount of the grant including VAT is currently €113.50. However, a senior government source said on Wednesday evening that the grant would be increased to between €150 and €200.
When asked if one value was more likely than the other, they replied that “both are possible”.
Another source said they believed the grant “wouldn’t quite double” and would be €150.