Refinancing clients with ongoing loans is this year's "pie" thatall banks with growth ambitions on the retail segment want a pieceof, with adverts suggesting that savings of as much as 70% can bemade on the monthly instalment. But such savings can be made onlywhen the repayment period increases significantly, which, however,means that at the end of the contract, clients end up paying higherinterests to the bank than in the case of the originalinstalments.
For instance, Raiffeisen, the third largest bank by assets, givesan example of a calculation whereby the monthly instalment of a10,000-euro loan falls from 240 to 72 euros. The calculation isbased on the interest rate difference - 7.15% in Raiffeisen'scurrent offer compared with 20%, the hypothetical interest attachedto the old loan, and in addition the repayment period is 25 yearsin the case of the new loan, compared with six years for theoriginal loan.
"Clients choose to refinance a medium-term loan through a long-termloan either to reduce the value of monthly instalments, to getadditional amounts, or a combination of the two - to significantlydecrease the value of the instalment on the ongoing loan notbecause they have trouble repaying it but because they need anotherloan," says Mitică Tararache, director of individual loans atRaiffeisen Bank.
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