Credit agreements are often viewed as normal everyday business. Some borrowers react spontaneously. You quickly need money for a purchase, a vacation trip or for a new car and therefore spontaneously take out a loan from the first best provider. But loans are by no means so commonplace.
Even small amounts of credit of over $ 5,000 or $ 10,000 are a noticeable burden for most borrowers over a period of two years or more.
If you take out an overpriced loan in a hurry, you can reschedule it, but at first, you are at least nine months tied to the bad business. This is how long it takes at least until a newly concluded consumer loan can be canceled by termination.
Finding the right loan online at very favorable conditions is not a problem if you take a few points into account before taking out a loan.
Getting credit right: summary and tips
- Find out about the content of your creation file and the score by a free self-assessment. Clean up inaccuracies.
- Set the loan amount you need. The loan amount must be high enough to be able to use the planned project to borrow. On the other hand, an attempt should be made to use as little external funds as possible.
- Prepare a household bill. It is a prerequisite for answering two questions: How much credit will I likely get from the bank and what loan amount can I actually afford?
- Think about the term. The shorter it is, the cheaper the loan is. But you have to be able to easily display the monthly installments.
- Prepare the online loan request as if you were going to a credit advisor at your house bank. Compile documents about your income and wealth situation. The same applies to documents about their personal circumstances (married? Double-wage marriage? Children? Maintenance obligations?).
- Think about which collateral you can provide and whether you want to conclude the contract alone or with a third person. Collateral and multiple borrowers on a loan contract have a positive impact on interest rates.
- Get an overview of the market using the Internet. Use some free and non-binding comparison portals. You can find a selection on this website.
- The decisive criterion is the effective interest rate, which is made up of the borrowing rate and the costs permitted by law. In addition, however, there are other criteria to be taken into account: free early repayment or special repayments, in some cases also the admissibility of suspension of repayments.
- Be sure to specify a purpose where possible. Purpose-linked loans are often cheaper than loans for free disposal or for “other”.
- Make specific loan requests after filtering out some loan offers using comparison calculators. Compare the incoming offers exactly. Also, read the fine print. An offer that has the lowest credit costs under otherwise identical conditions is the cheapest.
- Only do business with banks whose loan offers you understand exactly. Banks are reputable if all conditions are presented clearly, completely and in a way that borrowers can understand. If the website is confusing and users have to search for a long time to find out the conditions under which they take out a loan, this does not speak for the seriousness of the financial institution.
- Do not enter into additional contracts, such as residual debt insurance or other financial products. Additional contracts do not improve their creditworthiness, even if this is sometimes claimed. The products are often overpriced and leave something to be desired when it comes to insurance protection.
- With debt rescheduling, you can save a lot of money in many cases. Many banks do most of the work for you if you take out a debt rescheduling loan. But never take out a loan to pay the installments of existing debt. Such a loan leads directly to the debt trap. If you can no longer pay the installments of an existing loan, advice from a debt advice center, for example, is recommended.
- Take out a loan to invest money or even invest in shares or warrants? Buying listed papers with price risks on the pump, you’d better go to a casino. The chances of winning are higher there.
- Last but not least, don’t rush anything and don’t let lenders put you under pressure. With online loans too, it takes a certain amount of time for the loan amount to be in the account. If everything goes well, you can expect to receive a payment in 7-14 days. Instant disbursement loans or instant loans are a promotional stunt.
When is a loan cheap?
First of all, a hint of what is not important. The rate is irrelevant to the question of whether the loan is cheap or not.
A particularly low monthly payment does not in itself mean that the loan is a bargain. The rate is related to the term. The shorter the term, the higher the repayment portion and the higher the rate.
But the shorter the term, the cheaper the loan.
There are two reasons for this.
For one thing, there are interest advantages if borrowers choose the short term. On the other hand, the loan is repaid more quickly.
The length of time that interest accrues is reduced compared to long-term loans. The result is that the interest burden decreases.
The key metric is the effective interest rate. If additional contracts are concluded as part of a loan (credit default insurance or other financial products), which we expressly do not recommend, these costs must be added to the effective interest rate.
The cost of such insurance is only included in the effective interest rate if the conclusion of additional contracts is an essential prerequisite for the conclusion of the loan contract.
In terms of costs, a loan is therefore cheap if the total effective interest burden is lower than that of comparable loans. But the effective interest rate is not the only criterion that should be considered.
A borrower enters into a $ 40,000 loan agreement with a term of five years. After two and a half years, $ 35,000 from a savings contract will fall due.
We assume that, due to the lack of attractive investment alternatives, it makes economic sense to repay the remaining amount from the loan agreement.
Without prepayment penalties, this is only possible if a free total redemption has been contractually agreed upon.
The possibility of free special repayments or complete loan repayments can make a loan cheap in addition to a low effective interest rate.
On the other hand, the granting of redemption suspension or redemption-free start-up times is not economically favorable.
Those who avail themselves of these “benefits” extend the loan term and thereby increase the total interest burden.
Apart from the economic point of view, borrowers can still benefit from these side agreements.
For example, suspension of repayments can help borrowers get through difficult times without the need to cancel the loan.
Budget bill: how much credit is portable?
How much credit can I afford and how much is the loan amount that the bank is likely to accept?
Both questions certainly play a role before any borrowing.
- A household account is helpful for estimating performance. In the first step, all regular net income for the past year or the past two years is added together and divided by the corresponding number of months. Special income such as Christmas bonus, holiday bonus or child benefit is not taken into account.
- In a second step, all current regular and irregular liabilities (existing loans, maintenance costs and other) are deducted. It is important not to forget anything. In order to record any cost increases, the liabilities should be given a safety margin, for example, 10%.
- The third step is to estimate the cost of living. It is also important not to forget anything. In order to record any cost increases, the liabilities should be provided with a safety margin of, for example, 10%. In addition to food costs, this includes, for example, all expenses for insurance, vacation or the total house costs or rental costs. Renovation provisions should also be considered.
- In a final step, the difference between regular income and all costs that are apportioned to the corresponding number of months is formed. The resulting amount roughly corresponds to the monthly loan rate that the borrower can afford relatively easily.
The loan amount can then be estimated using a loan calculator.
A credit comparison provides an overview of the current market interest rates, as can be seen from the representative examples.
Then you choose the planned term of the loan. The loan calculator then throws out the possible loan amount.
Whether the bank actually grants the loan that you think you can afford is another matter. Banks use the information provided to draw up their own household bills and have developed special criteria for this, which can differ from bank to bank.
In addition, the assessment of creditworthiness can play a role. Credit Checker information gives the banks an idea of the reliability of the borrower.
The decisive factor is the score. If there are even negative entries, lending is generally a problem.
In addition to score values and the income situation, personal characteristics such as age, marital status or number of children also play a role for many banks.
Finally, the bank makes sure that assignable or attachable income is sufficient to service the monthly payments. You can find a good overview of the applicable garnishment tables here.