The loan agreement is the document that contains – or should contain – all aspects related to a loan. But what is particularly important here and on which sticking points should be absolutely paid attention to? The criteria, of course, begin well before the signature, because every borrower should be aware of one thing: Once the ink, whether digital or analog, is dry, that loan agreement applies down to the last detail. But what exactly matters?
It has long been known that a loan should be researched and compared in advance. Certainly there is no compulsion, but who compares, which saves on the view of the credit term sometimes considerable sums. This is how a loan can be obtained at favorable conditions through FINANZCHECK.de and thereby save interest costs in the double-digit range per year. The focus is, of course, on interest rates, as they determine the cost of the loan. But what applies here?
- Interest spread – it gives the prospective customer a from-to value. In short, the lowest interest rate is based on the sample customers, the highest interest rate is for those who are just creditworthy in the eyes of the provider. The range in between is interesting for most borrowers, although everyone should assess themselves realistically.
- Representative example – in credit comparisons and credit offers this example is always used. It is fixed by law and says that the offer must apply to an average of two thirds of the borrowers.
In loan comparisons, the favorable providers can be fished out well with a little patience. Really fixed, however, is only the interest rate, which is after the first examination in the credit offer. This refers to the actual person of the particular interested party and is based on his creditworthiness. Nevertheless, a bank that advertises generally favorable interest rates will naturally end up being more favorable than one that starts only two percentage points higher.
Term is another important factor in the loan agreement. It determines how long the contract and thus the loan runs at all and, of course, how high the final costs are. At the same time, the term is a double-edged sword:
- Short term – the shorter the loan and the fewer installments to be paid, the lower the costs. However, the rates are much higher and thus increases the risk that the contractual obligation can not be met.
- Long term – interest charges are due for each month. The cost of the loan increases with a longer term, but the risk of not being able to repay the installments is reduced.
In the end, everyone must decide for themselves which way makes sense. However, a burst loan is always more expensive in the end than higher interest payments due to a longer term. It depends however also on the kind of the credit. Construction loans usually run for twenty years or more until they are paid off. With them, the fixed-interest period is more important, because within it, interest rates cannot be adjusted, which is convenient given the current interest rates. Modernization loans or some car loans also run for several years.
On the other hand, if you take out a small loan and want to pay it off in umpteen installments, you will pay extra in terms of interest. An example would be the typical loan in the amount of 1.000 euros, which is to be paid off in twenty installments. Such loan sums should be repaid in the shortest possible time.
Special features of a loan are also important for the contract. In the end, it is simply true that every detail that is included in the loan agreement is also binding – for both parties. A bank can therefore not go and charge an unscheduled repayment during the term if this was defined as free of charge 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 and 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, unscheduled repayments may be limited in amount per year or term, while others specify a maximum annual sum. 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 redemptions. However, quite a few providers go and offer the early redemption free of charge. In some cases, it is staggered over time or limited to the last year of the loan, for example.
- Installment breaks – while credit insurance or residual debt insurance is 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, before using the installment break, it is necessary to notify the lender.
- Rate adjustments – more and more lenders are going and allowing rates to be adjusted upward, and sometimes downward, during the life of a loan. Loans can thus be tailored to new life situations and sometimes repaid sooner.
These points must necessarily be in the loan agreement, because only then can a borrower in an emergency also refer to it.
Conclusion – finding the perfect loan contract
The search for a good loan can be tedious, but this is due to the huge choice available. However, it is worth comparing, because why should a borrower settle for a contract that is not perfect? Today's selection 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 need to be firmly defined and in the contract. Especially in the case of long-term loans, inclusion in the contract is important, because who can otherwise prove that ten years ago he had agreed with a clerk that the loan could be repaid early at any time free of charge?