There are different situations in life in which more money is needed in the short term than the current financial scope allows. Whether for a new car, living room furniture or an exclusive vacation. If you want to fulfil a wish at short notice, cover a few unexpected expenses or have to bridge other liquidity bottlenecks, an instalment loan from a bank can be the solution.
What is an instalment loan, and how does it work?
In principle, most loans can be referred to as an instalment loan or instalment loan. The name only describes that a specific loan amount is paid out and then repaid with interest over a predetermined period. The instalment loan is paid out when all the necessary documents from the borrower have been received by the bank, checked and loan approval has been given. Depending on the lender, payouts within a few days are realistic and, for example, debt rescheduling to replace existing liabilities at lower interest rates is possible.
Calculate the loan instalment: what will the instalment loan cost me?
The costs for a loan include the monthly interest to be paid or the additional costs incurred during the term of the loan, e.g. for special repayment requests. But there are also lenders with free unique repayment options.
Instalments with the instalment loan
The instalments of the loan are made up of interest and repayment payments for the loan amount taken out. The monthly instalment to be paid then depends on the chosen loan term for the instalment loan.
Instalment loan: repayment plan
A repayment schedule helps keep track of current and future payments on a loan. Here it is shown, for example, how high the respective monthly remaining debt is. Banks speak of an outstanding repayment if the repayments are made beyond the regular monthly rate. The option of outstanding repayment can be agreed in the loan agreement.
Additional costs for the instalment loan
Payment protection insurance can make the loan more expensive. This is intended to protect the borrower in the event of unemployment, accident or death. Here they have to weigh the costs and benefits and consider how high the risk of unexpected unemployment is. Often these services are already covered by other insurances.
What do I have to pay attention to with an instalment loan?
There are numerous essential points that borrowers should pay attention to before applying for an instalment loan. A loan is only issued if the bank classifies the customer as creditworthy, but you should also assess your finances yourself.
1. Do not ignore existing liabilities
Are you already using your overdraft facility over a more extended time or are you paying off an expensive old loan? Make sure you get an overview of your current loans before applying for a new one. Especially in the case of the overdraft facility, rescheduling to an instalment loan can often be cheaper. For this, however, the terms of the loan should be carefully considered, and professional advice is recommended.
2. How stable is your financial situation?
Of course, completely unpredictable events can always occur, but to a certain extent, you can estimate your financial stability for an instalment loan. For example, if you have a fixed-term employment contract, you should not take out a loan that is paying off longer than your employment contract is valid.
3. What should the instalment loan be used for?
Even if you do not have to specify a purpose for an instalment loan, you should still consider what it should be used for. A frequent tip from financial experts is generally only to take out planned and deliberately selected loans. Zero per cent financing in the store leads to spontaneous decisions that you later regret.
4. Early repayment penalty
If you want to repay a loan earlier than actually stipulated in the contract, the bank is in many cases entitled to an early repayment penalty. In the case of ordinary instalment loans, the amount of this compensation is set by law at a maximum of one per cent of the remaining debt.
Instalment loan: which term should I choose?
In addition to the general conditions, the loan term determines the amount of the monthly instalments. What should you make the decision about the loan term dependent on?
Duration no longer than necessary
The longer the loan term, the more difficult it becomes to assess financial security. Whether they will have the same job in 10 years is impossible to predict. For this reason, they choose the term of the loan as short as possible.
Instalment loan: term depends on the use The idea here is not to burden yourself with a purchase that is already in the past. A simple example of the term would be a vacation. Here, the repayment term should end as soon as possible after the trip is over.