In life, there are always situations in which an installment loan is an optimal solution. Above all, if the financial scope is so tight that new purchases of equipment or repairs for the car are not possible, installment loans. You do not always have to save years or yourself for the next year to make a dream come true. As interest rates have reached a record level today, installment credit is becoming an increasingly popular option for improving their financial condition, making purchases, or fulfilling wishes that would not be possible without funding. But before you make an installment loan, you should get information, tips and tricks in advance, so that you can be sure that you have chosen the best offer in the end.
- 1 The installment loan – one of the most popular types of financing
- 2 A financing example
- 3 installment loan terms
- 4 requirements for receiving a installment loan
- 4.1 The question of purpose
- 4.2 The financing plan for the installment loan
The installment loan – one of the most popular types of financing
There are many different funding options; whether loan, mortgage or debt restructuring. Another option, which is chosen more and more often, is that of the installment loan. A installment loan is a form of financing that is characterized by paying the amount collected in monthly installments. The payment is made in one piece; the monthly installment is paid on the basis of a variable or fixed interest rate. With variable interest rates, there is a possibility that the monthly rate – based on the European interest rate – fluctuates. So the rates can be cheaper, but also more expensive. With fixed interest rates, the monthly rate remains unchanged. The borrower therefore already knows from his first installment on which monthly charges he must expect – until the end of the term or until the repayment installment. The loan amounts are usually between 500 and 80,000 euros; the running time is on average between 12 and 84 months, whereby variants with 120 months are possible.
A financing example
The loan amount is 10,000 euros, the term is 3 years (36 months). The interest rate is 5 percent. The repayment amount is – after payment of the repayment installment – at 11,500 euros (the loan amount is 10,000 euros, the loan interest at 1,500 euros). The loan installment would be – divided by 36 months – 319.44 euros. Sometimes it can come to deviations; In practice, account management fees or other charges are charged, so that not only the monthly rate is important in the credit comparison, but also the total charge at the end of the term.
Installment loan terms
In a installment loan – or consumer credit – of course, the conditions are in the first place. Although banks offer the same services, they differ in terms of fees and interest. But also the personal financial situation of the applicant plays an essential role. Who has collateral, has a good credit rating and is in a secure job relationship, will sometimes get better conditions than an applicant who looks for a rescheduling, perhaps even has negative entries in the Schufa and had to change his job several times in recent years. Anyone who is unsure whether the offer he has been submitted, is actually favorable, should therefore carry out a credit comparison in advance. There are several free portals on the internet that can be used to compare the different offers of the banks. However, the applicant should pay attention not only to the monthly installments or the interest rate, but also to the total burden at the end of the term. Exactly in that position are included any fees and other costs that make the loan expensive in the end. In the course of the comparison, direct or online banks should also be taken into account. Especially with installment loans, which have lower credit sums, online banks score with extremely good conditions and very low interest rates. Not always, the house bank where the claimant has his account and credit card must have the best offer; Sometimes it is also the online bank, which does not have a branch, but has the best conditions.
Requirements to receive a installment loan
Applicant must be 18 years or older and resident in the country where the loan application is made. Other conditions are possible, but these depend on the sponsoring institution. Many credit providers check the Schufa, others require an employee relationship, so that the applicant gets the installment loan. The bank may, for a variety of reasons, reject funding. Loan applications are predominantly valued negatively if the bank recognizes a risk that the borrower may not be able to afford rates a) or b) the borrower will be unable to receive the entire loan amount – referring to the term and amount of the loan – to pay back. Banks that want to score with various slogans such as “immediate credit”, “no Schufa check” or similar advertising should be questioned. These are sometimes dubious lenders, who know quite well the problem of the applicants, who are repeatedly rejected by banks, and try to profit from it. There are also legitimate banks that grant loans without Schufa, but can pay for this service, so that here higher interest rates are payable. Disposition loans, ie those financing that work on the basis of overdraft, should be avoided. Discretionary credit is one of the most expensive financings offered by banks.
The question of the purpose
If the applicant decides to use an installment loan with a purpose, he sometimes receives better conditions. Thus, if the applicant chooses a car loan, the annual interest rate is more favorable than if it were an ordinary consumer credit without a purpose. The advantage of the intended use is that the bank offers better terms as the institution knows what the money is used for. This is also the disadvantage of the applicant: He can use the loan amount only for the purpose – for example, the purchase of a car – use. If there is no purpose, the borrower has the money freely available, but must expect much worse conditions.
The financing plan for the installment loan
Anyone who chooses an installment loan should design a financing plan or budget in advance and answer the question of what loan amount is needed. It is important not to calculate too narrowly. For example, anyone who buys a new car and only wants to raise an installment loan of 5,000 euros sets a limit. Who sets a limit of 10,000 euros, however, can certainly use a margin, which is crucial in the end, to finally fulfill the dream of owning a vehicle. If the applicant notices that the amount paid does not suffice, he can apply for an increase, but must expect poorer conditions thereafter. For all loans, it is always true that the borrower should, in addition to obvious factors such as interest and principal, also keep an eye on whether there are any processing fees for the loans from the bank.