Until a few years ago, banks often persuaded clients for loans in foreign currency. However, at present, the process has been somewhat slowed down and credit policy is tightened.
Wary of financing the purchase of an apartment
Poles are wary of financing the purchase of an apartment, house, car or starting their own business with a loan in a foreign currency. Is it really best to take a loan in the currency in which we earn income or a loan in USD or franc is still a good solution?
Loans in foreign currencies may still be cheaper than loans in USD. The difference results from the way banks determine their interest rate. Both in the case of USD and foreign currency loans, it consists of two components: the reference interest rate and the margin added to it.
For USD loans, the reference interest rate is usually GFIC (i.e. the interest rate at which Polish banks borrow money among themselves). The interest rate on USD loans may also be determined on the basis of the bank’s internal base rates or the rates set by the Monetary Policy Council.
Interest rates on foreign currency loans are set similarly. However, bank base rates for currencies do not depend on the situation in Poland, but on the conditions prevailing in other markets.
The base rates are usually the interest rates at which banks borrow money in a specific currency on international markets, i.e. GFIC for dollars and francs and Good Finance for the euro. Banks add their margin to these base rates.
Customers who are considering a foreign currency loan should know when such a solution will be most beneficial for them and what currency of the loan would be appropriate for such a commitment.
We now know that Swiss francs are not as stable as we thought a few years ago. Perhaps a good solution would be to take out a loan in USD, where the installation will be much lower compared to the same loan in USD.
The Good Finance rate is very low (April 20, 2015, Good Finance 3M was 0.0020 percentage points), therefore the loan interest rate will be lower than in the case of loans in USD, bearing the higher GFIC rate (April 20, 2015. GFIC 3M was 1 , 6500 percentage points). Savings on installments can be up to several hundred USD, depending on the total loan amount.
When considering a foreign currency loan, you definitely need to consider the exchange rate risk. When deciding on a foreign currency loan, we never know how high the monthly installment will be. If – due to the turmoil in the financial market – the Polish currency is weakened, then the exchange rate will increase.
Increase the installment amount
This, in turn, will increase the installment amount. Of course, the reverse scenario may also occur, but over the years of paying back the loan, it can change many times.
Foreign currency loans also have a detrimental effect on their low availability – they are granted by a smaller number of banks, persons interested in them must also demonstrate significantly higher creditworthiness.
Customers with income in USD are treated by banks as persons with higher risk, therefore they require a much higher capacity.
Banks are currently tightening the conditions associated with granting loans in foreign currency and in order to be able to take such a loan, you must demonstrate very high creditworthiness, which is unattainable for many customers.
A USD loan seems to be the safest solution. There is no exchange rate risk, the installments are almost constant every month (it can also decrease if you decide on decreasing installments) and such loans are also more easily available.
Higher interest rate
The downside is only the higher interest rate, however, the aforementioned pros can offset this. Most credit specialists and advisers assume that it is better to take out a loan in a foreign currency, but only if the borrower is getting his salary in that currency.
Then the risk of a change in the currency exchange rate does not apply to him and he can pay back the low-interest liability. The statement that you should take a loan in the currency of your earnings is the most current.