you'd presumably want to keep interest at around the level required to cover the defaulting rate, plus costs of operation. Any lower and you're essentially providing handouts - there's an argument to be had for that too (e.g. UBI, negative income tax) but it's a separate topic.
you'd presumably want to keep interest at around the level required to cover the defaulting rate, plus costs of operation
Add: Plus a profit to that
But that seems to be covered. There are multiple banks who will provide credit to consumers at lower interest rates than that and obviously still can make a profit.
Car loans are usually lower than that. Mortgages go for between 1 1/4 and 2% (last time I looked).
The maximum rate of 15% is usually applicable for credit card debts.
There is a saying, you can accept any customers you want as long as the price (interest rate) is correct. As a group you can manage this pretty well. For some segments of unsecured loans the default rates are high enough to warrant those interest rates. The customers who score better gets lower rates as there is competition in the market and they often shop around. Having too high rates gives a lot of not taken up loan offers which the managers hate.
Car loans are almost impossible to lose money on especially the secured ones. It becomes a question of "how much can a person damage a car before it being repossessed". Usually the car is fine and one gets the money back as long as you don't loan out more than you expect can be recovered after said damage. That's why you can give so low interest rates. Unsecured car loans are much more expensive and often requires full coverage insurance.
So yes, one can give out loans to lower interest rates than 15% but then you have to cut off the lower scoring customers that would not be profitable with that rate.
It's interesting that the mortgages in Switzerland can go that low. I remember that in the eurozone banks are earning negative interest on their reserves due to european central bank policy. I doubt that you would see 1.25% mortgage rates if this were not the case- it very well may be that these rates are not profitable, but are at least less unprofitable than letting the money sit in reserve.
