Loans that start with a low interest are deceiving

The fashion of interest rates that remain fixed for a year at the most for housing loans has led to a wave of refinancing. “When the client enters the second year of the contract and sees that the interest rate doubles, the first move is to refinance the loan. We practically end up moving the same clients from one bank to another,” notes Lucian Cojocaru, chief executive of the Commercial Department of BRD-SocGen. The issue of loan refinancing was also brought up by Rasvan Radu, chief executive of UniCredit Tiriac, this spring. Although clients get a smaller interest rate for a while, refinancing too many times can lead to accumulation of significant amounts of loan application file analysis, granting and early repayment fees, each of which worth several percentage points of value of the credit. As a result, the client ends up increasing their indebtedness, instead of getting a lower instalment. Cojocaru, too, explains that this practice only serves to get banks volumes, which can be a dangerous way to do business. However, both BRD and UniCredit Tiriac are offering such loans. Cojocaru says that BRD’s loan officers inform the client when the loan is granted that the instalment will modify in the second year of contract and provide them with a separate repayment plan.