Why are loan variable interest rates not dropping?

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bb12

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Just wondering how banks decide on which variable interest rates to charge on personal loans.

Took out a loan 3 years ago with a variable interest rate of 6.6%. The interest rate increased to over 8% last year which I could understand in line with increases in the ECB rates and now stands at 8.4%. However, I would have thought the interest rate would have dropped significantly over the last past few months in line with the drop in interest rates across the eurozone, but not so. If the rate doesn't drop, then I don't see the point of ever taking out variable rate loans in the future.
 
bb12 said:
If the rate doesn't drop, then I don't see the point of ever taking out variable rate loans in the future.
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I agree with you there, better to take out a fixed rate loan where there is no penalty for early repayment. Personal loan variable rates never seem to reduce but they do increase.
 
They are not dropping because there is no legal requirement for banks to pass on ECB interest rate cuts on any products - including mortgages. They are more often passed on on mortgages because there is commercial pressure for them to do so. e.g. If your competitiors do it and you don't, the potential loss is far more.
 
I took out a loan in 2007 to buy a farm. At the time I was paying interest only for 2 years of 2,254.90 euro. That was at a rate of 5.95% variable. I am still paying the same interest at the moment when interest rates have dropped so much. When I qustioned my bank about this they said that the farm loan was not a mortgage and therefore the interest rate cuts did not apply to me. I then asked them what's the difference between a variable rate and a fixed rate loan, if according to them the rate doesn't change no matter what the ECB does. To this they gave me the same answer as above that the interest rate cuts do not apply to my loan. The difference would currently be about a thosound euro, which I could do with at the moment! Has anyone else had anything else like this happen to them?
 
nhojyelof said:
When I qustioned my bank about this they said that the farm loan was not a mortgage and therefore the interest rate cuts did not apply to me.
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Having a variable rate mortgage as opposed to an unsecured loan doesn't, de facto, mean that you will benefit from ECB rate reductions, though competition in the market ususally ensures that you do. The only way you can be certain of benefiting from ECB rate reductions is if you have a tracker mortgage.
 
Caveat said:
Have trackers not more or less been done away with though?
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They have but the point I'm making is that a variable rate loan, secured or unsecured, doesn't necessarily mean the borrower will benefit from ECB rate cuts.
 
Hello Norfbank...I dont think it is possible to take a fixed rate with the risk of a penaltly unless the fixed rate stayed the same
 
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