Vacation, a new car, a new stereo? Quite a few people lack the necessary money. An installment loan can help. However, there are a few important things to keep in mind.
So that the loan does not become a trap: Valuable tips for taking out installment loans.
There are urgent purchases and the overdraft facility on which the current account is exhausted. Some consumers consider installment credit when the money is insufficient. This can be a useful option. Astro Bank recently summarized what needs to be taken into account in the following five tips.
1. Choose the right installment
With an installment loan, borrowers have the option of choosing the amount of the installment to suit their financial situation when the contract is concluded. It is also important to choose the right term. The combination of interest and term results in the rate amount.
For example, those who choose a comparatively short term have to pay correspondingly higher rates. If a borrower opts for a longer term, the amount of the monthly installment is reduced.
However, a longer term usually increases the total interest burden. In general, therefore, borrowers should not, for example, choose the lowest possible rate with the longest term, but ideally a rate that gives them enough financial scope each month. One should always think of unplanned expenses.
2. Combine several loans
Some borrowers already have one or two ongoing loans. If existing loans are merged with the help of a new loan, customers can not only improve the overview and simplify repayment, but very often also save considerably thanks to the currently favorable low interest rate phase.
As part of a debt rescheduling, customers can use the new loan to replace ongoing installment loans. You can make new decisions about the term and monthly installments and, for example, wisely expand the loan amount. The customer receives more purchasing power and the currently very low interest rate level often even reduces the overall rate burden.
3. Redeem the overdraft facility
The option granted by a bank or savings bank to overdraw the account is called a credit facility. Such an overdraft is usually very expensive and is usually only suitable for consumers to bridge short-term financial bottlenecks.
Anyone who overdraws their account over the long term or regularly, often pays significantly more interest than if they take out an installment loan. It may therefore be worthwhile to either settle the overdraft facility with a new installment loan or to replace it with an existing installment loan.
4. Consider second borrowers
Together you are strong: If you take out your loan instead of alone with a second borrower, for example together with your partner, you usually pay less interest and – if desired – often get a higher loan amount.
Because together with a partner there is usually a higher net income and a better risk assessment and credit rating. The bank then often passes the lower risk on to the customer in the form of better conditions.
5. If you change your mind …
Consumers can withdraw from the loan agreement within 14 days of signing it. The legislator prescribes this right of withdrawal. Some banks also offer an extended withdrawal period. For example, the borrower has a general right of return at some institutions within 30 days of taking out the loan. Special repayments are also possible at many banks, so that a contract can be terminated sooner than originally planned.