Credit purpose and the interest rate - Evidence from the European Household Finance and Consumption Survey

The article presents empirical evidence for a significant role of stated credit purpose for the level of interest rates paid by the end users of non-mortgage credit (households). Data for the analysis was drawn from two waves of the Household Finance and Consumption Survey. The results of median regression show that, with the exception of credit for consolidation of other debts, remaining credit purposes were associated with lower interest rates compared to the interest rates of credit for car purchases. Especially low interest rates were evidenced for educational debt. Quantile regression analysis has shown that households which, given their socioeconomic background, experienced the highest interest rate costs, paid additional premiums if their debt was related to consolidation of previous debts or consumption. In the case of households paying relatively low premiums, consolidation of other debts and consumption motives were associated with lower interest rates than loans devoted to car purchase.