House financing, new refrigerator, car buying, study funding – almost everyone comes to the point in the course of life that a loan is needed. To complete a loan, some steps must be taken to ensure that there is no nasty surprise in the end.
Determine credit requirements
First of all, the question arises as to how high the loan should be. If borrowing is linked to a specific purchase – real estate, car, household appliances – the amount of the loan often equals the purchase price, provided there is no equity capital. In the case of real estate loans, this may possibly be increased by promotional funds from KfW. Again, this review should be part of the needs assessment.
Especially when completing the Internet, the temptation to record a higher sum than the actually needed. This only makes sense in a few cases, as the money is quickly spent thoughtlessly, but drives up the loan rates.
In the case of debt rescheduling, in addition to the existing debt, there may be additional liabilities that are to be settled directly in the course of the new loan, or sum X for a financial buffer.
In any case, the loan amount should be calculated exactly, because the higher the sum, the more expensive the credit.
Determine the amount of credit installments
If the credit requirement is fixed, one can do to the calculation of the monthly installments. It is important to determine the personal income and expenditure exactly. This results in the financial leeway left to repay the loan each month. In combination with the loan amount, the end of the necessary term is necessary to settle the loan.
The longer the repayment term, the higher the likelihood that personal life circumstances will change. Accordingly generous may be the financial buffer between monthly margin and repayment installment. It does not make sense that a financial bottleneck occurs at the slightest unforeseen event.
Compare credit providers
The Internet offers easy ways to easily compare loans and ultimately choose the cheapest provider. In addition, it makes sense to include the house bank or other branch banks on site in the comparison. Online providers are not always the optimal solution. In principle, it is possible to conclude a loan with different providers:
- other branch banks,
- Direct online banking,
- Credit intermediaries,
- Credit marketplace.
Reputable providers are usually recognized by the fact that all fees are transparent and clearly understandable disclosed and a loan is not linked to other offers such Bauspar insurance. Even offers that demand a commission even before the contract is concluded should be better avoided.
Especially on the Internet, where there are no personal counseling services, it is worth using review portals to find out about potential lenders.
Effective interest & Co.
So that the credit comparison really has a hand over foot, you should already be aware of the desired conditions in advance. These are mainly based on borrowing requirements and personal financial circumstances, as the repayment term and amount have a decisive influence on the interest rate.
When comparing it is important to ensure that the effective interest rate is actually compared, not the borrowing rate. The effective interest rate includes all fees, giving him a reliable indication of what the loan ultimately costs.
Other points that may be relevant in a comparison are the possibility of early full repayment of the loan, as well as the mandatory conclusion of a residual debt insurance:
- Some providers require early repayment of the loan, a prepayment penalty, which is payable in the case of special repayments by the borrower for the interest shortfalls. This may make a loan more expensive.
- The residual debt insurance serves as a hedge for the lender, since this intervenes when the borrower is insolvent. As long as this costs additional monthly money. For large loan amounts such insurance is quite common and useful, since in the event of death, the surviving dependents are secured, for small loans, the residual debt insurance but should not be part of the contract.
Specify credit usage
For example, if the loan is linked to the purchase of a car or real estate, the interest rates are sometimes lower because the vehicle or house can be deposited with the bank as collateral. Accordingly, it is worth mentioning the use of the loan application.
In the case of real estate loans, due to the current low interest rate phase, it is worthwhile to agree on long terms and to profit from the interest for a correspondingly long time.
Pay attention to the fine print
The fine print serves to protect the lender from possible damage. In contrast to the rest of the contract, the passages are often deliberately set so small that you almost need a magnifying glass for reading – and therefore tends to overread the corresponding parts of the contract.
However, this is precisely where risks for the borrower are hidden: in small print, often legally precarious clauses are hidden, which in case of doubt are disadvantageous for the borrower.
But even with the following agreement caution is required: “Additional agreements must be in writing. In the event of ineffectiveness of individual provisions of this contract or agreements, the others shall remain valid. “If a larger part of the agreements in the fine print violates the rules of the country, this addition is hardly to be preserved before a court.
Make a loan application
A loan application can be made with different types of credit providers. In addition to the classic banks, these are credit marketplaces and credit intermediaries. In any case, certain documents are required and submitted directly with the application in order to achieve the quickest possible decision. If a part of the documents is missing, the further processing of the application stops. The time until the decision is extended accordingly.
To be submitted in any case:
- Proof of income from the last three months, for self-employed and freelancers the last 1-2 tax assessments and possibly a business evaluation (BWA),
- Information on additional income through rental income, capital interest or second jobs,
- For employees, information on the type of employment (temporary / permanent),
- Information on current expenditure,
- Details of loans already in progress and other regular liabilities such as alimony payments,
- Copy of identity card,
- in the case of an online application, the PostIdent procedure,
- if applicable, information on existing collateral such as real estate and life insurance,
- in case of unstable financial circumstances, if necessary, the designation of a guarantor.
Examination of the application by the bank
The bank is very interested in the borrower paying the installments regularly until the end. An indicator of the level of risk is the creditworthiness of the applicant. The bank asks the Private credit if there are any negative entries. She also asks for evidence of revenue and regular liabilities to get an idea of the financial situation.
To avoid an unpleasant surprise, it is worthwhile to obtain a self-assessment on a regular basis. According to statistics, information provided by Private credit is often outdated or incorrect, and as a result has a negative impact on creditworthiness. Since the bank does not decide whether the information is correct or wrong, it rejects in the worst case the loan application due to the incorrect information. If one discovers incorrect information in the self-report, one can ask the Private credit in time for correction or deletion.
Actual interest rate
Banks often quote the lowest interest rate on their advertising offers. Comparisons on the Internet often use the two-thirds rule, which means that the interest rate is applied to two-thirds of the borrowers.
However, how high the personal interest rate ultimately turns out depends on the individual circumstances. The greater the personal risk, ie, the worse the credit rating, the higher the interest rate. For example, self-employed people are often worse off than employees, and young people are often at a disadvantage compared to older people. Even with increasing maturity, the effective interest rate increases. At the same time, a specific purpose or the indication of a second borrower or guarantor may have a positive effect on the amount of the interest.
Duration until payment
A loan will by no means be paid immediately after the application to the borrower. A bank always needs a certain amount of time before the claim or the creditworthiness of the applicant has been checked. For this, some banks only need a few days, others take weeks to decide.
An online application is usually shorter than a loan application made directly to the bank, unless it is the principal bank. This is already comprehensive information on the financial situation of the borrower, the processing time is reduced accordingly. Credit intermediaries, on the other hand, need a little longer, as they do not lend themselves, but first have to go looking for a lender.
The amount of the loan also determines how long the borrower has to wait for the payment. The lower the loan amount, the lower the default risk of the bank and the faster the loan will be approved.
The applicant can positively influence the processing time by submitting all required documents directly. If you do not have a salary statement that needs to be requested and subsequently submitted, the decision will obviously take longer.
Conclude loan agreement
After the credit comparison, the credit application and the positive decision by the bank, the conclusion of the credit agreement follows. In this all agreements are bindingly regulated. Again, before signing, it is important to check all clauses carefully. Once the signature has been made, changes are no longer possible. A special look should be given to the following points:
- agreed effective interest rate,
- Repayment rights,
- Repayment term,
- monthly installment,
- Additional agreements such as the conclusion of a residual debt insurance.
Only when the credit agreement has actually been concluded, the purchase contract should be binding.
It is not rocket science to conclude a loan agreement. But you should not be tempted even with offers with a seemingly uncomplicated and quick conclusion, not to study the contract exactly. No credit institution takes a high risk in lending – on the contrary, if necessary, it secures against this by high interest rates and questionable clauses.
If you need extra money quickly, it is best to contact a direct bank or a provider that offers instant loans. Thanks to partially automated decision-making processes, there is less time to decide.