Every third German citizen now finances part of their lives with a loan, which includes cars, houses, luxury items, etc. What is a loan? A loan is someone else’s money that a bank provides to a customer for interest over a specified period of time. The conditions vary greatly and depend on the trustworthiness of the customer.
General information about the loan
- Eradication and replacement
- How the repayment of a loan expires
- What to look for here
- The required documents
- cost traps
- The most effective approach
General information about the loan
This trustworthiness depends on the so-called SCHUFA information and the personal economic conditions (terminable employment contract, collateral) of the borrower and determines the interest rate. The SCHUFA is a loan security company that stores information about debtors.
Credit protection in this case means that a loan company can obtain the truthfulness of its client’s information before lending.
Each bank has access to the data of its customers stored in SCHUFA. When opening an account, you must already give your consent to the bank to obtain this information. On the basis of the data transmitted by creditors, SCHUFA determines a so-called “scoring”, which serves as a guideline for the creditworthiness of a customer , ie calculates the risk factor. There are different types of loans, car leasing contracts, home loan mortgage loan contracts, consumer loans, overdraft facilities, etc.
Eradication and replacement
All these loans have one thing in common: they are obliged to make regular repayments in the form of installments to the bank. For this purpose, the credit company prepares an installment and repayment plan . As a rule, the customer himself can decide how much to set his installment and how long the term of the loan should be. The repayment criteria, rate, interest rate and maturity are based on the bank’s own terms and are usually recorded in the loan agreement in writing.
If the economic situation suddenly improves, you can repay or repay a loan ahead of time, even if the end of the term of the loan has not yet been reached. All credit institutions have their own clauses in which an early transfer is regulated. Very often, however, a premature repayment of the loan is associated with costs (prepayment penalty, about 1% of the loan amount), which the bank reserves.
It is advisable to take this into account when concluding a loan and leave this option open. Costs of this kind can be avoided, however, by handling the faster repayment through special repayments, which are usually possible once a month and free of charge.
A transfer can also be made from bank to bank, ie if you have already taken out a loan from a bank and want to change the loan company during the term. This is the case if another bank offers a loan with cheaper interest rates . In this case, the new bank then replaces the customer’s loan with the other bank as quasi-service, whereby the terms are again renegotiable. Again, additional processing fees are to be observed.
Good to know:
It is now up to the borrower to decide on a case-by-case basis whether the processing charges are due to the lower interest rate. Basically, the replacement of a loan with financial improvement is recommended.
How the repayment of a loan expires
For this a new loan, often at another bank, is taken over to replace the old one. To this end, all current liabilities are combined to form a lower credit line, thereby creating a new credit line. It basically does not matter if it is a personal loan, an installment loan, a collection or mortgage loan.
Above all, it is worth considering that the switch from a very expensive credit line to a much cheaper installment loan saves costs and makes you faster debt free again. It makes sense in any case to compare the liabilities at the various banks to select the cheapest option.
What to look for here
It is often the case that one obtains more favorable terms of credit from another bank, as with the one in which one took up the loan. If you want to go now and replace the loan at the old bank, you should note the termination of this condition . Because often there are so-called termination conditions that can be associated with more of the less expensive. But it essentially depends on the type of credit.
In the case of an installment loan such a termination is only possible after a period of 3 months. This applies from the date on which the loan was disbursed.
The required documents
If you are looking for another bank for the replacement because of the better conditions, you should do it the way you did when you filed the original one. Of course, a list of all liabilities should always be made .
In addition, you should make a complete cost of living expenses. You should always make sure that all costs that are set out can also be proven . This should be done in the form of payroll, electricity and energy bills but also life support costs.
The more complete the documentation is presented, the faster the processing and eventual payment of the new bank.
Many of the banks have included a so-called prepayment penalty as a clause in the loan agreement. This means nothing more than being obliged to be able to repay the entire loan sooner than it was intended that a sometimes not small sum of the old credit institution would be charged.
Such a rescheduling is actually only useful if you have taken out a construction loan and would like to make of this only a small prepayment penalty due to the low remaining credit limit. But it can also be saved here.
The most effective approach
- You should always check whether a prepayment penalty has to be paid
- always obtain a written offer from the lending institution
- Compare the current offers of other banks or credit institutions
- apply for the new loan and, of course, indicate the purpose of the loan,
which increases the probability that you get this too
- replace the old loan immediately after the commitment of the credit line
Any potential bank lending institution prefers that the documents are as complete and meaningful as possible. So you should only go to the bank when you have compiled all relevant documents.