Tercio de Melo Sousa

↵Taking a loan in Germany in 2022

In 2021 I moved from Brazil to Germany with my wife and our oldest dog; now a 9 years old Shih Tzu. We stayed in a couple temporary appartments while we were looking for a permanent one. We found one in March 2022, but there was a catch. In Germany, when you rent an unfurnished appartment it doesn't only come without furniture, it comes with nothing, not even a kitchen sink. The only thing that you might expect is a toilet and toilet sink, that's it.

We needed to furnish the appartment, buy a kitchen, and because of COVID times we were home office workers, also needing office furniture. We had savings in the bank, but it wasn't not enough to get the appartment to the state we wanted to make it, and still fulfill life plans we had. We really could use a vacation and travel a bit, for example. If we furnished our appartment bit by bit we would spend a whole year buying something every month and postponing our plans.

The solution was clear, we would take a loan from the bank. I scheduled an appointment with my bank manager, and there I explained what I intended to do with the money. He explained, almost as if he was apologizing, that Germany no longer had zero or negative interest rates, because of the inflation in the previous year. If I accepted to take, the loan, I would have to pay a 6% interest rate.

— Well... 6% a month is indeed above what I expected, but I guess it's manageable. — I said.
— Oh no sir... I mean 6% per year. — He responded.
I used all my self-control to not laugh.
— Yes, of course, that's what I meant, it works for me.

You see, in Brazil 6% is considered a damn low interest rate not because people think it's cheap, but because we usually have much higher interest rates than this. My brazilian credit card for example, has currently 16.1% of revolving credit interest per month! This means a Total Effective Cost (TEC) of 500% a year! For comparison, in the USA it's about 1.85% per month, which amounts to 24.6% TEC a year.

Those 6% anually that my bank manager was talking about was expensive and discouraging to his German point of view, given that after the 2008 financial crisis every developed country had to lower their interest rates absurdly, and Germany spend 8 years with 0% interest rates. Too bad for us that we moved right when interest rates spiked back to the pre-crisis values.

Between Brazil and Germany there are many differences in lifestyles, one of them is that the working class in Germany doesn't fear being crushed for life by abusive interest rates when a loan is needed.