Cheap loan terms, every household looks for financing. In Germany, banks spend billions of loans and loans each month. According to Bundesbank, in January 2016 alone, the volume of consumer finance was 7.34 billion euros. Whoever can finance cheaply, sometimes does not look so closely at the conditions. Here, our Loan Conditions online loan calculator clearly shows that the banks still differ at this point. Which conditions are in the foreground? There are facts about loan conditions in practice.
Cheap loan conditions – the short fact check
- effective annual interest rate for interest costs
- Term has a significant impact on financing costs
- Rescheduling / Repayment may result in prepayment penalties
- Remaining debt insurance increases financing costs
- Special repayments help save money
- Equity can affect interest rate
1. Favorable loan conditions: debit interest rate versus annual percentage rate
In the eyes of many households, a loan decision still focuses on the interest rate. In principle, this contributes significantly in terms of cost to the burden. However, one thing must be clear here: Depending on the loan option, other loan terms are becoming increasingly important. And mistakes are often made in interest.
Example: Instead of comparing the APR, it focuses on the borrowing rate. The problem is obvious. Banks and savings banks charge various charges and fees on the debit interest. The bottom line is that the loan is so much more expensive than originally thought. While Bank A raises 0.89 percent in its borrowing rate but adds 0.34 percent to its fees and charges, Bank B’s credit at 0.95 percent is initially more expensive. The fees of 0.20 percent make the loan but the bottom line cheaper.
Debit interest vs. annual percentage rate – examples from our loan calculator
The APR is the crucial criterion to make the right decisions in the loan terms comparison. But it is not the only interest rate to keep an eye on. Especially where a loan is not called immediately, provisioning interest comes into focus. The classic example is the construction loan. Here capital is usually retrieved after construction progress. Who exceeds the agreed acceptance time pays deployment interest. And these can be quite a problem.
Borrowers should not only keep an eye on the borrowing rate for their loan. Especially with regard to the financing costs, very different interest rates still play a role. Important is the annual percentage rate. And another point ensures favorable conditions – equity. This reduces capital requirements, which can have a positive effect on interest rates.
2. Saving money with the right time
The most important loan terms include the term. In this context, a clear distinction must be made between the classic maturity term as the time horizon of the full repayment and the fixed interest period. The latter defines the time window over which the bank and the borrower have agreed on the validity of the loan terms.
While so-called debit interest rates hardly play a role in consumer finance, they clearly come to the fore in connection with construction money. Cause are the high loan sums of often over 100,000 euros. The latter make a full repayment difficult in five to ten years.
The term is a way to make loans expensive or cheap. Example: 15,000 euros are being financed at 2.45 percent pa (effective) – once over 48 months and once over 60 months. In case A the rate is about 312 Euro per month. With 742 euros interest and fees, the loan terms for loan A compared to loan B on the bottom line – compared to about 923 euros interest and fees (rate 250 euros) – significantly better.
Tip: Consumers can use a second aspect to influence the interest burden on the loan – through special repayments. The latter allow redemption payments without the risk of prepayment penalty and pay off especially for high loan amounts. Particularly in the mortgage lending segment, borrowers are feeling their effects quickly.
|Credit A (10 years)||Credit B (10 years)|
|loan amount||100,000 euros (repayment 4 percent)|
|Borrowing rate (pa)||2.45 percent|
|Special repayment (pa)||0 percent||5 percent|
|Interest and fees (around)||19,230 euros||13,270 euros|
How expensive a loan becomes depends not only on interest. It matters how long you have to pay the interest. Small rates are comfortable at first glance, but cost money. Anyone who can apply the red pencil here saves money in the end – and creates completely new financial opportunities.
3. Remaining credit insurance: sensible hedge or expensive rip-off?
Again and again, the topic of residual credit or residual debt insurance appears on borrowing. Here it is an insurance, which – if certain events – covers the repayment of the remaining loan amount.
Generally it is about:
- Illness / incapacity
The advantage: By the existence of the insurance, the borrower goes out of the way of the effects, which a loan termination with payment difficulties has. However, the residual debt insurance is now partly in the criticism.
Deutsche Bank PrivatKredit – Securing Borrowers
Among other things, it concerns the amount of the premiums, which additionally increase the interest charges. On the other hand, insurances today are often offered by banks (on a commission basis) as an addition to the loan. Although the degree is often voluntary, some borrowers may get the impression that they are making use of favorable lending rates. But this is rarely the case.
The conclusion of a residual credit insurance can make sense when it comes to very large sums, which in the worst case result in a total economic loss. In the case of smaller installment loans, the degree is not necessary. Before signing the contract with the bank, however, a comparison with this product is also worthwhile.
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4. Loan conditions – FAQ
Are long fixed interest periods generally recommended?
No – a blanketization is absolutely to be avoided at this point. The reason: The interest rate commitment is influenced by individual framework conditions. An important criterion is the interest rate level on the credit market. At high interest rates, short commitment periods offer potential. But even with low interest rates, we must advise to a detailed examination. From the point of view of high repayment rates, it may well be worthwhile not to overstretch the borrowing rate – taking into account follow-on financing.
Can expensive loans simply be repaid?
Cheap loan terms are annoying – if you can not use them yourself. Debt-linked loans are generally difficult to restructure. On the one hand, banks are – with exceptions – not obliged to liquidate the financing. On the other hand, credit institutions have the right to be compensated for lost interest income. A prepayment penalty, coupled with the cost of the new loan, can quickly make rescheduling expensive.
Does the collateral / loan affect the credit conditions?
In the case of simple installment loans – of a few thousand euros – a collateral is usually not necessary. Especially in the field of mortgages this looks different. Here, the financing object serves as collateral. The ratio of loan amount and market value (loan) may affect the loan rate. In general, high lending by banks can lead to worse loan conditions – ie a higher interest rate. Those who want to secure favorable loan conditions, have good opportunities with equity. And can also incorporate own contributions – the so-called muscle mortgage – into the financing.
Cutting fixed-rate loans in loan terms comparison better off?
Banks today offer fixed-interest loans or loans with credit-based interest rates. Which variant pays off depends on the individual conditions. Package is probably hardly an answer right. We advise you to clarify the situation before signing a loan comparison.
Can cheap loan conditions be applied for online?
Yes, today a loan application is usually possible online as well. As a consumer you also have the advantage that the credit comparison can be made easily. But: Before the loan is disbursed, all relevant evidence must be submitted. The relevant instructions should – in the sense of a quick settlement – take seriously and also deal with the question of identity verification.
5. onlinekredite.org: Facts & Tools for Borrowers
No matter whether it’s about the new kitchen, a car or living space – in Germany, many households are now using finance. But loans do not just spend money on comfortable monthly payments, they also cost money. Our installment loan comparison shows where cheap loan terms are available. However, anyone who wants to make the right decision when it comes to credit can not just look at the level of interest rates. Our onlinekredit.org guides – eg on the subject of loan repayment – give important tips. And with our news, interested households always stay up to date on the best online loans for the various financing projects.
6. Conclusion: With the right conditions, the loan is really cheap
Consumer finance, installment loans or car and building loans – households are now often resorting to loans. Many consumers are looking for the cheapest possible loan. From our point of view you should not confuse this claim with favorable loan conditions. The bar is a bit higher, because not only does the interest rate count here, but the entire financing vehicle has to be put to the test – including the term, debt rescheduling option and special repayment. And it does matter which aspects (eg credit rating) affect interest rates.