If you want to take out a loan, not only the loan amount, but also the loan term plays an important role. Ultimately, anyone who relies on their bank advisor when choosing loan terms is probably badly advised.
This is not because the bank advisor wants to harm the customer, but because the customer knows neither the life plan nor the life story. If you have a relatively poor credit rating or are close to the limit, you have to leave the decision to the bank advisor.
The borrowers with a good credit rating
However, people who have a good credit rating are well advised if they worry about the different loan terms. Of course it is important to talk to the bank advisor about your plans; However, this should act as a guide and not as a decision-maker for which term you ultimately decide.
In the end, it is also no effort for the bank advisor to calculate different terms for a loan. This service takes a few seconds and is free of charge. If you want to get an idea of it yourself, you can also try it out on various comparison portals on the Internet (free of charge) and create transparency through a comparison.
Because taking out a loan should be well thought out and the term is an essential factor. Banks advise, but if you have the know-how, you should inform yourself sufficiently.
The borrower is responsible for deciding on the loan term
The borrower can decide on the term of his financing. No matter whether it is a year, two years or 30 years – as long as the credit rating fits, there are no limits for the customer. Of course, the following also applies here: the shorter the term, the cheaper the financing. Because with a loan, you first pay the interest before the capital is repaid after some time.
So that the borrower knows what costs are expected, it is advisable that the borrower request a repayment schedule. The repayment plan provides him with an overview of how the monthly repayment is divided, which parts of the interest are paid and when the capital repayment actually takes place. The term also depends on the amount of the loan.
Another aspect is personal skills. It is therefore advisable that the borrower draw up a kind of household bill in advance. Ultimately, you shouldn’t spend all of your money on the monthly installment, but also have to keep something on your side. Unforeseen repairs or back tax payments must not bring the borrower into financial trouble.
An extension of the loan term
If there is no money left after deducting the monthly fixed costs and the loan installment, it is advisable to either reduce the loan amount or increase the term. Many borrowers make the mistake of choosing a term that is too short. In the end, this is the cheapest option, but it can be expensive if you cannot afford the monthly charge.
Debt rescheduling, extensions of the term and other discussions with the bank cost money (processing fees) – apart from the paperwork. What many do not know: you can pay off almost any loan early. This means that you would rather choose a longer loan term and – in the worst case scenario – pay off prematurely before deciding on a short term and at the end of the month you don’t know how to pay outstanding bills. But you mustn’t make the mistake of setting credit terms too long.
Anyone who applies for a small loan and chooses a term of 20 years is considered a popular customer with the bank, but books an enormous additional expense due to the interest. Because if you think that you have paid half of the loan amount after half the loan term, you are wrong. The repayment plan provides information that this is not the case.
How do I find the right loan term? -The calculation of other sources of money
It is also important that you calculate incoming payments. Do any capital insurance policies expire, are sales proceeds from real estate on the plan or are there any home savings contracts or fixed-term deposit accounts that will be paid out in the next few years?
Who knows what the incoming payments will look like in the next few years can of course choose a shorter term and speculate with the repayment. It is important, however, that the term is not chosen so short that you do not know how to pay the monthly repayment.