The following example can illustrate this: Customer X repays an installment loan from Volkswagen Bank direct for 15,000 euros at an interest rate of 5.35 percent. With a five-year term, he transfers 284.60 euros to the bank every month: a total of 2,076 euros. If he simultaneously invests 285 euros month after month at VTB Bank in a bank savings plan with an interest rate of 2.5 percent, he can earn an interest profit of 1,120 euros after five years. His installment loan costs almost twice as much as his savings plan earns in interest.
Only save when it has been paid off
This means that savers should compare the interest rates on their investments and current loans carefully. If the loan interest exceeds the credit interest -; which is usually the case – the motto is: first pay off, then save. Positive side effect: Your own finances become more secure because paying off debts reduces risks such as default in the event of illness or unemployment.
Provision for old age comes first
However, this is not advisable for long-term savings plans, for example for retirement provision. If these are interrupted, the missing payments reduce the additional pension in old age, not to mention the lower compound interest effect.
The same applies in the event of higher investment interest rates compared to loan interest rates. This is often the case with older bank savings plans with high fixed interest rates, whereas in the current low interest rate environment, new installment loans can even be obtained at lower interest rates. For example, Santander Bank offers installment loans with short terms starting at 2.99 percent effective interest rate. Loans from DKB, SKG Bank or Norisbank are now also given to customers with a four before the decimal point.
Installment loan comparison: With many installment loans, special repayments are even possible at no extra charge. You can find current interest rates and product details in our installment loan comparison.
2024-01-07 02:31:37
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