How to choose the cheapest loan
There are many credit offers. However, if you want to find the cheapest loan, you should pay attention to a few things. The best tips to take out a cheap loan.
A new car, the renovation of your own home or the purchase of a new sofa - for years, banks have been advertising rock-bottom or even zero percent interest rates for installment loans to fulfill these and similar wishes. Do not be dazzled by this! And do not believe that it cannot be cheaper. It can be expensive.
How you can safely take out a favorable loan:
1. check and improve creditworthiness
If you want to apply for a loan, you should first check your creditworthiness. If you google "check creditworthiness", you will find suitable providers on the Internet. Some of them, such as Score Kompass, offer the credit check free of charge and as often as you want per year.
This information shows you how good your credit rating is and what may be affecting it negatively. If there are incorrect or outdated data among them, these should be corrected before applying for a loan, thus improving the credit rating. Otherwise, you risk paying unnecessarily high interest rates. In the worst case, your credit application will be rejected due to your creditworthiness.
2. determine the loan amount, monthly installment and term realistically
Calculate the required loan amount as accurately as possible, thinking not only about here and now, but also about tomorrow and the day after tomorrow. This is important because it is always advantageous for you to have only one loan. Even a second loan can be significantly more expensive than the first, which would noticeably increase your overall costs.
You also need to be realistic and above all honest with yourself about the monthly repayment rate. Again, don't just think about here and now, but also about the time in, say, one, two or five years. Will you still be able to pay today's installment then? Overall, after deducting all current costs, a maximum of 40 percent of the remaining money per month should be used for loan repayment. Accordingly, the right term can be selected.
3. choose the right type of credit
If you plan to buy a car, renovate your condominium or house, or purchase new furniture, you should use a car loan or a home loan for this purpose. These special loans are often more favorable than classic installment loans, where the intended use can be freely selected. There are also special loans for civil servants. They do not have a specific purpose and are usually characterized by longer terms, higher loan amounts and a higher permitted debt.
4. take out a loan together with another person
In most cases, it is advisable to take out a loan together with another person: From the banks' point of view, this makes you more creditworthy, therefore more likely to receive a loan approval and, as a rule, pay lower interest rates.
Married couples in particular should always take out a loan together, because they are liable for their spouse and his or her credit anyway. As a married couple, you can only benefit by taking out a loan together.
As a second borrower, in addition to the life partner and spouse as well as the parents, especially such persons are suitable who can demonstrate a positive credit rating and with whom there is a close relationship of trust. Both borrowers should know: The second person is also obliged to provide a detailed self-disclosure. Accordingly, he or she must also disclose personal data such as contact details and place of residence, information on the employment relationship, and relevant expenses and income. In addition, a credit report on the second person is also obtained. If the loan is no longer repaid as agreed, the banking institution has the right to garnish the salaries of both debtors in order to settle the balance of the loan.
5. obtain and compare credit offers
The more quotes obtained and compared from branch and online banks, the better. Initially, however, only obtain condition requests. This is nothing more than an inquiry to a bank about their current financing terms. This inquiry does not affect your Schufa credit rating. Make sure that you provide the same information on the loan amount and intended use as well as on the borrowers for all inquiries. Only then can the offers be compared with each other.
As a rule, you must provide the following information:
- Borrower: This is you and, if applicable, a second borrower of your choice.
- (Net) loan amount: This is the amount you would like to borrow from a bank.
- Use / purpose: Here you specify what you want to use the money for.
Then compare the loan offers with regard to the following points:
- Effective annual interest rate / effective interest rate: banks are obliged to state the effective annual interest rate when making a loan offer. The effective interest rate expresses the annual costs of a loan and is given as a percentage of the loan or payment amount.
- Debit interest rate: This is the interest rate that the bank charges for the (net) loan amount. However, unlike the APR, this does not include any additional costs.
- Two-thirds interest rate (2/3 interest rate): This is the interest rate that two-thirds of all customers of the respective bank receive.
- Term: This indicates how long you want to borrow the money or by when you will repay the (net) loan amount including all interest.
- Total cost: This is the total cost of the loan. They consist of the (net) loan amount and all interest.
- Residual debt insurance: Banks may offer you residual debt insurance or payment protection insurance in addition to the loan. If you can no longer pay your installments, this insurance will cover you under certain conditions. Check whether such insurance is part of the loan offer and whether the costs incurred for it are included in the total costs or the monthly installment. If you are given the impression that you will only receive the loan if you take out such insurance, you should refrain from making this offer. Residual debt insurance is not mandatory.
- Costs for interim unscheduled repayment and early loan redemption: Check and compare what costs this incurs for the individual offers.
- Duration until disbursement: Check and compare how long it takes for the bank to make a decision on your loan application and for the money to be in your account. On average, it takes about ten days. More and more loan comparison portals and banks offer the option of submitting the information and documents required for the loan application digitally, thereby shortening the processing time.
After this comparison, you make a so-called credit request. To do this, you must disclose your relevant income and expenses to the bank and submit salary statements, among other things. In this context, the bank will also query your Schufa creditworthiness. Based on this information, the bank will decide on your credit application.