Whether dream vacation, new fitted kitchen or buying a home – not always enough is the savings on the account to realize his dreams and projects.
In times when interest rates have reached a record low, more and more people are embarking on the idea of funding. So-called universal loans do not exist; Although the principle of the loans is identical, there are – depending on the project – different financing options.
A short overview
Whether disposition credit, mortgage lending, installment or securities or construction credit – there are various financing options that should be checked in advance to see if they can meet the needs of the borrower.
Depending on the loan, there are also different requirements to be met. While there is often only a regular income for the normal repayment credit, mortgages may also require certain collateral – such as shares, land, insurance – to get the desired amount.
Then there is the credit without or despite negative entry in the credit bureau, which is not frivolous , where borrowers must be careful not to fall into the trap of a dubious provider.
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1 The installment loan
The installment loan is the most common type of loan. Finally, you can use a installment loan to finance furnishings, the new car or a dream trip.
The borrower can take out financing with or without purpose; with purpose means that the money may be used only for a certain thing – so the car purchase. If the borrower chooses to finance without purpose, the money is freely available to him.
Installment loans can be equipped with a fixed or variable interest rate. For fixed interest rates, the monthly installments remain unchanged until the end of the term. If the borrower chooses variable interest rates, the interest rate reacts to developments in the European interest rate. If the interest rate rises, the lending rate and the monthly installments increase automatically; but if it falls, the credit becomes cheaper.
2 The disposition credit
A disposition credit – or a credit line – is defined as financing whose characteristic lies in the fact that the ordinary current account may be “overdrawn”.
Thus, the holder of the checking account can use money, which is de facto not available. As a rule, the current account can be overdrawn up to three times the salary. Such financing is intended primarily for short-term investments, since, on the one hand, no application must be made to the bank, on the other hand, the discretionary credit is among the most expensive financing that is offered.
The interest rate is – in direct comparison to installment loans – extremely high. The borrower is free when he recovers his account; however, the longer your checking account is in negative territory, the more expensive the credit line becomes.
Even if the loan is uncomplicated, you should use that option only in the context of short-term investments; If you want to finance larger projects, you should opt for a installment loan. Disposition loans are suitable, for example, when unexpectedly high bills (for example for car repairs) have to be paid, but the credit balance in the checking account is insufficient.
3 The call credit
Withdrawal loans represent the possibility of arranging a sum – up to a maximum of EUR 50,000 – with the bank, which is available if required. The agreed amount is transferred to the current account of the borrower.
However, if only 15,000 euros (or part of the agreed sum) are required at the beginning, interest will only be charged for that sum. With the call-off loan, agreed sums can be paid out – step by step; From time to time, the borrower may also inform the bank that, if he can afford a portion of the amount, he will not need the full amount.
Such financing is suitable if it is unclear at the beginning of the project which costs can actually arise.
4 The construction financing
As construction loans or mortgage lending are larger amounts, these lending operations are usually of a longer duration, so that terms of 30 years are not uncommon.
Mortgage lending is repaid with monthly repayments; Here, too, the borrower – as with a installment loan – has to decide whether to opt for a fixed or variable interest rate. For mortgage lending special payments (special repayments) are possible, so that the term can be shortened.
Sometimes the loan can also be redeemed prematurely; However, in this case, the bank must be contacted in advance if a prepayment penalty is due or not.
Mortgage lending, as it involves large sums and long maturities, is only authorized if the borrower can provide proof of collateral and a regular income. Collateral may be funds, securities or life insurance.
5 The securities loan
If the potential borrower owns shares, bonds or funds, he can use the loan to borrow his investments – with a certain percentage. Thus, the securities can be transferred as collateral to get a loan from the bank. The loan amount is based on the value of the securities account (current market value).
The mortgage lending value is usually set lower, so that any fluctuations can be taken into account. If prices fall, banks can advise the investor to sell the securities or increase the value of the deposit.
If the borrower uses securities, these can be borrowed up to a maximum of 90 percent of the value; in equities the value is between 40 and 60 percent. That variant may be risky, as the borrower may end up losing more money than expected; The amount of the loan is determined depending on the value of the investment.
6 The personal loan
Sometimes, however, a personal loan – the so-called P2P loan – can serve to realize the projects. These are loans that are not made available by the bank, but by individuals who expect high profits by providing the sum. There are various platforms that provide borrowers and lenders.
Above all, those financing for the self-employed and freelancers are interesting, since such professional groups always have problems getting a standard installment loan. It should be noted that the effective interest rates – compared to installment loans – are higher; This may also be due to the brokerage and account maintenance fees charged by the credit-intermediary platforms.
7 Credit despite credit bureau
If the potential borrower has a negative entry into the credit bureau, it can sometimes be difficult to get funding. It is important that – despite a negative credit bureau entry – you still pay attention to the providers and do not accept the first offer. Finally, there are numerous financial institutions that want to make profit out of necessity and attract with various ads people who have already been rejected by many banks.
This is sometimes a reason why the misconception exists, loans without credit bureau query are dubious. This is not true; As a rule, these are ordinary installment loans. The only danger is trapping a dubious provider. However, there are several criteria that, when met, clearly demonstrate that it is a reputable lender.
A reputable provider will never charge fees for inquiries and non-binding credit offers; He will also have a serious website – including imprint – and on ads such as “money immediately – withdraw money within 24 hours”. If the borrower is unsure whether the found lender is a reputable company, he can also look for reviews on the Internet and check whether there are sometimes negative entries or not.
In the end, the credit comparison is worthwhile
Regardless of whether it is at the end of an ordinary installment loan, mortgage lending or a loan without credit bureau query should be – only who faces the different offers, will ultimately find the cheapest loan. There are numerous portals on the Internet that provide a free credit comparison.
Borrowers but not only pay attention to the interest rate, but also on the overall burden. That sum indicates how expensive the financing at the end – including all processing and account maintenance fees – actually becomes.