Investing in a property, renovating the apartment, booking a new car or once a dream vacation, there are different reasons for loans. If you are not one of the top earners or have made an inheritance, you will mostly need the help of third parties, usually the banks. In times of low interest rates, it is very tempting to apply for a loan or loan. However, the loan must be repaid. Getting a loan is not that easy, even in economically difficult times. Do not underestimate the additional costs and choose the right term for loans.
Choose a term that is tailored to you
A recurring major mistake when applying for a loan is the wrong choice of the term. If you have unlimited trust in your bank, you will certainly get advice there and trust your bank.
However, it is highly recommended to think about the right maturity yourself, after all, your bank never knows your exact circumstances and life situation as well as you do. If you do not have these and are happy that you can get a loan at all, you cannot negotiate so skillfully.
If you have the appropriate credit rating, it makes sense to include your own arguments and considerations regarding the right term for loans in the consultation. Let the bank present you with several variants. The calculation of different loan terms is part of the Bank’s service and is not a great deal of work for the bank advisor and free of charge for you.
Loans have different terms
You can have a say in the duration of the loans and make a selection of the repayment time. One year, five or ten years, mortgage loans often have a term of up to 35 years. Simply put, the shorter the repayment time, the cheaper it will be for you. Interest is increasingly repaid at the beginning, and later the current capital.
The conditions you get for your loans are of course very important. However, not only do you choose your financing partner according to the amount of interest required, but also pay attention to the correct term for loans. Of course, the correct loan repayment time depends on the amount of the loan and the repayment schedule.
A budget, in which you compare your income and expenditure, shows you exactly how high the monthly repayment for your loan can be. However, you should not forget that unpredictable burdens can come at any time. A sudden car repair or an extended illness. Choose the right term for loans so that you do not exceed a monthly charge of up to 30 percent of your income.
Often the mistake lies in the short running times
Of course, it makes no sense to take out loans for consumer goods, such as a car or furniture, with a term of twenty or more years. For larger purchases, for example when buying real estate, it makes sense to choose a longer term. Especially when the budget shows that there is not much left to repay the loan installment.
A longer term for the loans reduces the monthly installment. The disadvantage is, unfortunately, that the loans become more expensive, since, as already mentioned, only the interest is paid back and the current capital is only repaid in the second half of the term. Before you choose a term that is too short, you should add a year or two to the term. There is little point in trying to pay the loans faster and then getting into trouble.
If you already know exactly when you are granting the loan that you can repay the loan in the foreseeable future, for example through processing or selling property, you should arrange an early repayment with your lender in advance.