That’s what matters
A popular loan for private purchases is the installment loan. Virtually every bank or savings bank offers its customers such consumer loans. In addition to financial institutions, most retail and mail order companies also trust the proven form of payment in installments. However, buyers do not receive money from the dealer, but a certain amount of goods, the equivalent of which they then have to pay back bit by bit – similar to the installment loan.
Installment loan and its interest
With the classic installment loan, consumers borrow money from the bank, for example to make a larger purchase. Depending on the provider, the maximum loan amounts usually fluctuate between USD 25,000 and USD 50,000. In return for the money made available, the bank charges interest. The amount of interest depends on the general interest rate level on the capital market, the loan term (months) and the profit margin of the bank.
The total of the installment loan is calculated from the sum of credit and interest, which must then be paid back to the bank in monthly installments. Advantage: The amount of the installments and the duration of the repayment are fixed, so the burden of the installment loan can be calculated exactly for the entire term.
The right amount of the installment loan
Three factors determine the amount of the monthly loan installment: the loan amount, the interest rate and the term. The principle applies: the higher the loan amount or the higher the loan interest, the greater the monthly charge and vice versa. Debtors drive cheaply with cheap installment loans from direct banks, which you can find in our installment loan comparison. Installment loans from national commercial banks such as Agree Bank, but also almost all savings banks, Best Bank and Lite Bank, are almost always significantly more expensive than installment loans.
Who gets an installment loan on the Internet?
Most direct banks only give installment loans to people with a fixed income, whether they are employees, workers, civil servants (especially popular!) Or pensioners. Creditworthiness (creditworthiness) plays an important role. However, it looks bad for most banks with loans for the self-employed. Exceptions are the Cream Bank or Good Bank. With the latter provider, these loans are more expensive. Probably because the workload is greater. Interpreting a balance sheet requires more work and different personnel than comparing the information from the last three payslips with the information from the applicant.
Installment loan and term
The monthly charge can also be influenced over the term of the installment loan. The rule is: the longer the loan term, the lower the monthly rate and vice versa. Those who value quick repayment must shoulder high loan rates. But he is debt-free in a comparatively short time. Those who prefer the lowest possible monthly charge can extend the term. If there is more time for repayment, the rate drops and the financial scope increases.
Disadvantage: The longer the installment loan runs, the more interest you have to pay to the bank. When determining the loan term, it should also be borne in mind that each item has a certain useful life. For example, the installment loan for a car should never run longer than the intended holding period of the vehicle. Otherwise it happens that you are already looking for a new car but the old one has not yet been paid for. In the worst case, there is a double credit charge.
Installment loan and special repayment
Many consumers think that special repayments are only possible as part of a mortgage. But even with classic installment loans, banks now allow cost-saving extra payments. The advantages of an interim repayment are obvious: borrowers thus reduce the total interest burden on the loan, and they also become debt-free more quickly.
Example: You take out a loan of USD 15,000 from your bank. With a five-year term and an effective interest rate of 3.79 percent, the loan costs you just under USD 275 per month, the total costs amount to USD 16,464. If you make a one-off special repayment of 1,500 USD after two years, the term will decrease by half a year to four and a half years, and the total costs by around 160 USD to 16,305 USD.
If a new special repayment is made a year later in the same amount, the term is reduced by another six months and the total costs drop to 16,236 USD. In total you would have saved almost 230 USD in interest and would have been almost debt free for almost a year.
Important: When taking out a loan, make sure that there are no costs for special repayments.
Installment loan and termination
Since mid-2010, the following regulation has existed for the termination of installment loans: You can always cancel the loan. However, the bank or savings bank may charge you a prepayment penalty for this. The amount is limited to one percent of the loan amount. With remaining terms of less than one year, on the other hand, it is only 0.5 percent of the loan amount.
When you take out an installment loan, you should always choose a provider that avoids such fees from the outset and lets customers out of the contract at any time without these costs if they want to redeem the loan early. One such provider is ING.
Installment loan: compare interest rates
A precise interest rate comparison is worthwhile with installment loans. The offers for installment loans differ widely. Some providers offer consumer loans with up to double-digit interest rates, others are less than three percent. If you choose an expensive offer, you quickly pay double the price of a cheap loan.
The installment loan comparison on biallo.de shows the currently cheapest offers on the market. You can start a credit request directly from your favorite bank online. And: Usually, you will receive feedback on your loan request from the selected bank and online credit check, usually within half a second, as to whether your financing is possible and what the conditions look like for you. Then you can start and submit your signed loan application to the desired bank. As a rule, your desired credit will be in your checking account after three to five working days.
For example, retailers also offer a cheap installment loan when buying furniture. Disadvantage: You are no longer a cash payer and do not get a discount on the purchase of furniture. Therefore, a bank loan is almost always cheaper.
Don’t get an installment loan?
It happens every now and then that a credit request is rejected by the bank – after, for example, your data was not considered to be fully creditworthy.
Annoying at first, but there are a few ways to get the loan you want:
- Check your own credit rating, for example at Credit Bureau
- Reduce loan amount
- Extend the term of the loan
- Find allies that provide additional security, such as partners, relatives or acquaintances
- Search further, compare and try again at another bank