Anyone who earns a loan wants to earn it – that’s the simple rule in the credit system. The merit of a loan depends on the amount of the premium as part of the repayment, generally known as interest. So, from this it can be concluded that the lower the interest rate, the cheaper the loan will be. By law, interest rates are limited, which already significantly limits the earnings framework of a bank. But even within these legal regulations, borrowers have certain options to influence the determination of the individual interest rate on their own credit.
Interest on loans: Economic aspects and financial situation crucial
Basically, when it comes to a loan, the bank wants to make money by lending it, and this is the main reason for setting an interest rate. However, the interest rate also serves, to some extent, the need for credit security at the bank. And just under this aspect, an interest rate can be influenced indirectly for your own benefit. In particular, one’s own economic aspects as well as one’s own financial situation are of importance with which one can influence the so-called risk premium in the interest rate in his favor. Below are 5 tips for a cheap loan summarized for you:
1.) Good credit is a prerequisite
One of the main criteria in determining the interest rate on a loan is the so-called credit rating. The important thing is to recognize that there is the credit-based interest rate on loans. That is, the worse the credit rating, the higher the risk of default, the higher the interest rate, which in this case acts as a type of loan loss insurance. In other words, the better your own credit rating, the more likely it is to get a very favorable interest rate on your own loan.
It is therefore important to always keep an eye on one’s own credit rating. The most important element for this is the requirement of the own Schufa information, which can be requested once a year for free at the SCHUFA (protection association for general credit protection). This self-report gives you an overview of your credit score and the entries made at SCHUFA. If incorrect information is stored, you should have it deleted if possible.
In addition, especially in the project of borrowing the following rule applies: Inquiries at various banks for a loan should always “Schufa-neutral” (conditions query) done, otherwise entries are made in the own SCHUFA and thus adversely affect the credit score, without it ever came to the conclusion of a loan.
2.) Choose the right repayment term
Credit debt should be paid as soon as possible and not burden your household budget for a long time. However, it is also true that excessive loan installments due to short-term maturities are also dangerous. So before you take out a loan, your own budget planning should be created as a basis. So the question is
“How much credit can I actually afford over what time period?”
So first, all expenses should be compared to revenues. The difference represents the maximum possible loan installment per month. However, here too, a safety buffer must be included in order to remain financially flexible in the event of unforeseen and, above all, unplanned events that require financial flexibility. The amount and duration of the desired loan should be chosen in a realistic relation to the monthly available budget as well as a financial planning certainty over a period x.
Helpful and recommendable is the use of a loan calculator, which allows you to get an impression of how high the monthly installments for the desired loan can be. In the credit comparison, also vary the loan amount and the term. This gives you an accurate picture of which loan is best for you.
3.) Is the loan earmarked or not?
Classic installment loans are often granted without need for indication of purpose of use. However, the resulting freedom to use the loan is often provided with an interest premium. However, anyone who is aware of what is to be used for the desired loan, may well from this capital in the form of a discounted interest rate beat. The classic example here is the car loan. With such a loan, the risk of default is NOT offset by an interest charge, but by the car being considered as collateral for the bank. If, as a borrower, you are unable to pay the loan installments, the bank has the right to sell the car and use the purchase amount to repay the loan. For banks, the risk here is therefore not quite so high, which is why they often offer cheaper lending rates for loans with purpose.
4.) loaded Schufa? Then specify guarantor
As already mentioned at the beginning, the creditworthiness of the borrower plays a not insignificant role in the granting of loans or the determination of credit conditions. If your own credit rating is charged, these loan conditions automatically worsen. However, one can counteract by offering the bank a solvent loan guarantee when borrowing. Because for the Bak, a guarantor provides increased protection against a loan default. A security that rewards the bank on the one hand with a higher chance of obtaining a loan, but also with an often, significant improvement in credit conditions.
5.) necessarily compare offers for a loan
Last but not least. Differences in numerous loan offers are commonplace. Which means that a credit that looks cheap at first glance may not really be the cheapest. Especially the internet offers numerous possibilities for a credit comparison – also schufa neutral. With a few details in a loan calculator you get numerous loan offers from different banks at a glance. In this way, they can use the results from a loan calculator to gain a first comprehensive overview and, based on the credit comparison, make an initial decision on the extent to which their loan project can be realized on which terms.