Loan period – more beneficial extension or shortening the repayment period?

The final cost of the loan consists of many parameters. These include loan amount, interest rate, additional costs, as well as the loan period. We have no influence on most of them, but we can manipulate the repayment period, ie choose a shorter or longer one. Thanks to this, depending on your needs, we will reduce the installment amount or the number of installments. But what will turn out to be a more advantageous solution: extending or shortening the repayment period?

If you are going to take out a cash loan, you probably wonder what repayment period will be most profitable for you. Do you always have to stick to it stiffly? And what if you want to shorten or extend the loan period?

By all means, you have such an opportunity, especially in the case of a mortgage loan, which can be repaid up to 35 years.

What loan period should you choose?

What loan period should you choose?

Wondering what loan period to choose? Preferably one that will be tailored to your financial capabilities. However, this is not so simple.

You must also take into account creditworthiness. Moreover, the banks set the maximum age of the borrower which he will reach when the last installment is repaid. This means that when you are 55 years old, you can not count on a loan with a repayment period of 30 years.

Maximum loan term – advantages and disadvantages

Is it worth choosing the maximum loan period? It depends. This solution has its pros, although it seems that there are more disadvantages in this case. The main benefit is the lower installment. Therefore, if the installment amount is of key importance to you, then a long loan period will prove to be a good choice.

However, you must know that the overall cost of the loan will also be higher in this case. What’s more, for the whole period of its duration, you may have a problem getting another loan because your creditworthiness will decrease significantly. Why? Each financial liability affects the amount of creditworthiness, which means that you must spend part of your savings on paying installments.

The maximum loan period is a necessity for many people, because if you shorten it, your creditworthiness will also decrease. Of course, this does not apply to everyone, but with lower earnings, the bank may think that you can only pay the lowest installment.

It is worth following the example of the total cost of a mortgage with a maximum loan term of 35 years.

  • Loan amount: USD 200,000
  • Loan period: 35 years
  • Credit interest rate: 5%
  • Equal installments in the amount of: USD 1009.38
  • Total interest cost: USD 223,937, 35

Therefore, when deciding on a mortgage for 35 years, you have to pay back a huge amount, which can equal the doubled value of the borrowed amount. Below you can see how much less you pay off when you decide to take a loan for 20 years.

Shorter loan period – advantages and disadvantages

Shorter loan period - advantages and disadvantages

Shorter loan period means higher installments, which will not suit everyone. However, you get more time to pay back, and thus, you leave more money in your household budget. It is also a good step if you want to take out a second mortgage soon and you want to maintain your creditworthiness.

Let’s check how shorter the loan period is against the background of the above calculations for the maximum repayment period.

  • Loan amount: USD 200,000
  • Loan period: 20 years
  • Credit interest rate: 5%
  • Equal installments in the amount of: USD 1319.91
  • Total interest cost: 116,778, USD 75

So, as you can see, the installment is significantly higher in this case, but if you decide to pay back for 15 years (in this example, you have compared a loan for 20 and 35 years, you will get over USD 100,000).

Can I extend the loan period?

Can I extend the loan period?

Many borrowers are wondering if it is possible to extend the loan period and whether it is worth doing at all. What is it then? If you want to extend the loan period, you have the option. Thanks to this, your monthly installment may decrease and you will avoid financial problems.

However, you must know that the total loan amount will increase then. In addition, before making a decision to extend the loan repayment period, you should check the maximum possible loan period with your bank.

If you took out a loan for 30 years and the maximum loan period is exactly the same, you can no longer extend this period.

Banks offer loan for the retirees and pensioners.

The loan for pensioners has good media coverage. The target group of Spin Lenders or silver agers ensures good sales figures. To spur sales even further would require a comprehensive range of affordable credit options. This is exactly where society divides.

Loan for pensioners – Credit Bureau study 2013

Loan for pensioners - Credit Bureau study 2013

Loans for pensioners are part of this year’s studies on consumer behavior in Germany. The Credit Bureau study demonstrated a significant increase in lending and the increase in offers for senior loans. The extraordinary repayment reliability of senior loans also proved. About 99 percent of all loans granted were easily repaid. Seniors are turning into interesting credit customers.

It is therefore no wonder that more and more credit providers are embracing Spin Lender. Age limits are revised upwards. Insurance packages ensure that lending is twice as rewarding. In addition to the loan interest, the high commissions for the residual debt insurance are also received.

The division of society

The division of society

A loan for pensioners can only be measured with a measure at first glance. If the statistical figures from 2011 are taken as a basis, pensioners receive on average about three times the pension of a pensioner. With an average pension of 2,750 USD (average value at federal level), credit obligations can very well be met. The same statistics did not look quite as rosy for pensioners.

The Federal Ministry of Social Affairs published a pension average (men west) with 985 USD. The pension is already 65 USD below the attachment limit. (1,050 USD for single people). If the figures from the Copy Lender are used, there is a pension of 1,100 USD for East and West when viewed together. No matter which of the two numbers is correct. It becomes clear that a pensioner has hardly any credit opportunity.

The comparison of income for pensioners and pensioners is not a reason for a jealous discussion. It is only intended to show that not all success figures reach the population to the same extent. As long as politicians are linked to pension development and not to pensions, the situation will not change positively. The situation will tend to worsen due to the effects of the agenda, which reduces the purchasing power of pensions each year.

Retired credit options

Retired credit options

Due to the income gap, the loan for pensioners can only be fed from different sources of credit. The entire credit market is open to pensioners. If necessary, you can also buy additional time (age limit) through residual debt insurance and special providers. The pensioner credit up to 79 years is no longer a problem.

At a young age, retirees still have credit opportunities on the general credit market if they own a paid property. Mail order loans are also accessible, at least to a modest extent, for up to around 70 years. Afterwards, only the children can act as guarantors or “substitute borrowers”.

Retirees can find modest access to credit on their own through the private credit market. Although the retirement benefit is unlikely to allow garnishment, investors rely on age-related repayment security.

The loan for pensioners is very important for a decent retirement. Unfortunately, there are no equal opportunities for access.

Consumer credit – what are the opportunities?

In banks, you can take advantage of various types of loans, among which consumer credit and consumer credit are available. These are two loans with some similarities but also undeniable differences. It is worth knowing how to distinguish them and which loans can be classified as consumer loans and which loans as consumer loans, e.g. cash loans.

What is consumer credit?

What is consumer credit?

In the provisions of law, the legislator precisely defined what a consumer loan is and how and who can take it. The definition of this banking product was included in the Consumer Credit Act of May 12, 2011. The specificity of consumer credit is strictly defined here.

What is this? Well, a consumer loan agreement is one in which the value of the financial liability does not exceed USD 255 550 or the equivalent of that amount in a foreign currency. In addition, such a loan is granted for purposes not related to the borrower’s business or professional activities. Consumer credit may be taken only by natural persons.

In the light of the aforementioned Act, a consumer loan agreement also means a loan agreement not secured by a mortgage, which is intended for renovation of a house or apartment, including in an amount greater than the amount specified above.

The Act also clarifies which loan agreements can be considered as consumer credit. Among them were:

  • loan agreement;
  • loan agreement within the meaning of the banking law;
  • agreement to postpone the consumer to the date of satisfying the cash benefit, if the consumer is obliged to bear any costs related to the deferral of the benefit;
  • credit agreement, in which the creditor incurs an obligation to a third party and the consumer undertakes to return the fulfilled benefit to the creditor;
  • revolving loan agreement.

Warning!

A consumer loan is not, for example, a loan agreement whose interest rates are lower than those commonly used, including a loan with a subsidy or a loan with 0% interest rate.

Consumer Credit Act – what has changed?

Consumer Credit Act - what has changed?

The legal basis for consumer credit is the Consumer Credit Act of May 12, 2011. Consumer credit is currently granted by various entities, including banks, loan companies and credit unions, based on current regulations. They were implemented in the country on March 11, 2016, slightly changing the rules on which consumer credit is made available to customers.

The Act was slightly modified, and the most important change was the introduction of non-interest loan cost limits, which include all costs related to the consumer loan agreement, excluding interest. At present, non-interest loan costs over the entire lending period cannot be higher than the total amount of the given liability.

In addition, if the consumer has not repaid one loan, lending to the next one by the lender within 120 days of the first payment will not be a way to be able to charge him more non-interest loan costs over the limit. It is calculated jointly for all loans granted in this way.

Features of consumer credit

Features of consumer credit

We already know what specific credit consumer credit is. Its features may coincide with those of other liabilities, such as loans or cash loans. What should we know when taking a consumer loan? Up to what amount can you take it?

Based on the information presented above, it can be summarized that a consumer loan is a loan granted to a consumer for purposes not related to his business or professional activity, payable and granted in the amount of up to USD 255 550. If the loan amount is higher, it will not be considered as a consumer loan.

Customers are undoubtedly interested in the interest rate on such a commitment in the context of a consumer loan offer. It is regulated by the provisions of the Civil Code. It stipulated that the interest rate on loans and advances, including consumer loans, may not exceed twice the sum of the reference rate of the National Bank and 3.5 percentage points.

Currently it is 10 percent. per year. There is no upper limit on the commission charged by the lender for consumer credit, although the sum of non-interest costs may not exceed the total amount of credit.

Why you should always compare loans before signing an offer

When choosing to take out a bank loan, you must be on your guard. Above all, your approach is dictated by the need for capital and by your need for liquidity. The ideal offer should therefore both meet your expectations without having too much impact on your budget.

 

The Importance of Comparing Credit Offers

The Importance of Comparing Credit Offers

By comparing the loans before signing an offer, you will have the opportunity to find a loan that meets your needs and that will come back to you at a lower cost. This also saves you from unpleasant surprises by escaping the traps of banks. Indeed, a small difference on the APR can weigh heavily on the total cost of the loan depending on the amount borrowed and the repayment duration. And most of the time, borrowers tend to just look at the interest rate and forget about the loan terms and other fees. Compare the loans before you start then remains a priority, not to say a necessity.

 

Things to consider when comparing loan offers

Things to consider when comparing loan offers

For a first comparison, you can use the APR as a basis. However, in order to fully understand the hidden costs of your loan, also consider the following:

  • The interest rate: it allows you to have an idea of ​​what you will have to pay to return the requested amount.
  • The intervention threshold and ceiling: it helps you to determine if the said offer really meets your needs.
  • Modularity: it gives you the possibility to adapt your income to the payment of the contracted loan.

But in the end, do not rely solely on these elements, but rather on the total amount of the loan. Remember to find out about active establishments and their detailed offers. Here are small details that seem trivial and yet could inflate the bill in the end. They are not always highlighted, but are still indicated in the APR (Annual Effective Annual Rate). It is therefore important to base your comparison on the total cost of your loan by including the elements mentioned above, but also:

  • Bank charges;
  • The repayment period;
  • Loan insurance;
  • Administrative and warranty costs;
  • Application fees applied;
  • the broker’s remuneration (if any).

This lets you know the intricacies in the set before you choose.

 

How to do a loan comparison?

How to do a loan comparison?

A more than essential step before applying for a loan, the comparison is not to be taken lightly. You can choose to do it yourself, or call on outside help. But in any case, do not neglect this procedure.

For example, you can hire a professional broker. This credit expert will accompany you and guide you throughout the process. From the comparison to the advice until the signing, he will be able to take care of the negotiation and will indicate the good plans to you.

Otherwise, you can conduct online market analyzes. With some comparators, you do not have to provide your contact details. This applies especially if you are still at the information stage and you prefer discretion. With others, however, you will fill in the loan details with a standard contract offer. You can directly sign and finalize it on the site itself by delivering them the few documents required.