The loan agreement is the document that contains – or should contain – all aspects related to a loan. But what is especially important and which sticking points should definitely be paid attention to? The criteria, of course, starts well before signing, because there's one thing every borrower should be aware of: Once the ink, digital or analog, is dry, that loan agreement applies down to the last detail. But what exactly does it matter?
Conditions
It has long been known that a loan should be researched and compared in advance. Certainly there is no compulsion, but those who compare sometimes save considerable sums over the term of the loan. How to get a loan at favorable conditions through FINANZCHECK.de and may well save double-digit annual interest costs in the process. Of course, the focus is on the interest rates, as they determine the cost of the loan. But what applies here?
- Interest rate spread – it gives the prospective customer a from-to value. In short, the lowest interest rate is based on sample customers, and the highest interest rate is for those who are just creditworthy in the eyes of the provider. The range in between is of interest to most borrowers, though everyone should be realistic about themselves.
- Representative example – in loan comparisons and loan offers always work with this example. It is set by law and says that the offer must apply to an average of two-thirds of borrowers.
Credit comparisons are a good way to fish out low-cost providers with a little patience. Really fixed, however, is only the interest rate, which is in the credit offer after the first examination. This refers to the actual person of the particular prospective customer and is based on their credit rating. Still, a bank that advertises generally favorable interest rates will naturally end up being more favorable than one that only starts two percentage points higher.
Term
The term is another important factor in the loan agreement. It determines how long the contract, and therefore the loan, will run in the first place and, of course, how much the ultimate cost will be. At the same time, the term is a double-edged sword:
- Short term – the shorter the loan runs and jeweniger installments must be paid, the lower the cost. However, the rates are much higher, increasing the risk that the contractual obligation can not be met.
- Long term – interest charges are due for each month. The cost of the loan thus increases with a longer term, but the risk of not being able to repay the installments decreases in return.
Ultimately, everyone must decide for themselves which way makes sense. However, a busted loan is always more expensive in the end than higher interest payments due to a longer loan term. But the type of loan is also important. Construction financing usually runs for twenty years or more until it is paid off. With them it depends more on the fixed interest period, because within it interest rates can not be adjusted, which is convenient in the current interest rates. Modernization loans or some car loans also run for quite a few years.
If, on the other hand, you take out a small loan and want to pay it off in umpteen installments, you will pay interest on top of that. An example would be the typical loan in the amount of 1.000 euros to be paid off in twenty installments. Such loan sums should be repaid in the shortest possible time.
Special cases
Special features of a loan are also important to the contract. In the end, it simply applies that every detail that is included in the loan agreement is also binding – for both sides. So a bank can't go and charge an unscheduled repayment during the term if it was defined as free in the contract. The examples of special cases at a glance:
- Repayment rate – it is particularly important for construction financing, because the repayment rate says how much of the loan is actually repaid with each installment. Experts recommend a rate of two percent or more. The higher the rate, the lower the amount that must be subsequently financed.
- Unscheduled repayments – they should be in every loan agreement today and of course free of charge. Depending on the bank, you may be limited in the amount of unscheduled repayments per year or term, while others specify a maximum annual amount. Just as important as the unscheduled repayment is how it is handled: Do the monthly installments remain the same, but the term is shortened, or is the unscheduled repayment credited to the monthly installments so that they are lower??
- Early redemption – by law, the bank can charge a fee for early redemption. However, some providers offer early repayment free of charge. In some cases, it is staggered or limited to the last loan year, for example.
- Installment breaks – while credit insurance or residual debt insurance are often viewed skeptically, installment breaks are a blessing in disguise. They allow borrowers to skip out on some installments in serious cases. The term is now extended by the suspended months. Of course, a notice to the lender is required before using the installment break.
- Rate adjustments – more and more lenders are going to allow rates to be adjusted upward, and sometimes downward, during the life of a loan. Loans can thus be adjusted to new life situations and sometimes be repaid earlier.
These points must absolutely be in the loan agreement, because only then a borrower can also refer to it in an emergency.
Conclusion – finding the perfect loan agreement
The search for a good loan can already be tiring, but this is due to the massive selection. It's worth comparing, though, because why would a borrower settle for a deal that isn't perfect? Today's choice allows you to find an ideal loan for yourself. It is important to pay attention to the term, interest rates and also special conditions. They all must be firmly defined and written in the contract. It's important to include it in the contract, especially for long-term loans, because who can otherwise prove that they agreed with a case worker ten years ago that the loan could be paid off early at any time, free of charge?