What credit options are there?
With a loan, we borrow money from the bank to finance something immediately that we would otherwise have to save for a long time. In return, the financial institution requires regular repayments and a co-payment in the form of the interest accrued on the loan. In order to find the best loan, we need to look at conditions such as terms, repayment installments and interest charges. What loans are there and how do these factors differ in them?
Why are loans taken out?
If you are planning a purchase that you cannot afford all of a sudden, you take out a loan. In this way we use borrowed money and only pay shares as monthly fees ourselves.
Due to the interest, these payments are higher than the purchase price of the item. Therefore become preferred to take out loans with low interest rates. How high they are differs between the providers.
Especially with direct banks, for example at one credit from Bank Norwegian, we can benefit from attractive returns that slightly increase the final amount paid. Since they don’t have to finance branches and their employees, they can often offer better deals and are particularly popular with young people.
To the frequent loans include loans for:
● Tuition fees
● Vehicle Purchases
● home ownership
● and Co.
When is it worth taking out a loan?
A loan sounds like the perfect method for a purchase you can’t afford. But that doesn’t make it an all-round solution for people with financial problems. A loan can too a debt trap will. High interest rates greatly increase the final amount we pay.
We get real problems when we cannot make the monthly repayments. After several reminders, the bank can terminate the loan agreement and claim the entire loan in one fell swoop. Therefore, taking out a loan is only worthwhile if we do too a regular, secure income have with which we can repay the installments.
It is also interesting to take out loans to pay off an expensive existing loan. Depending on the conditions, this arrangement can be worthwhile.
Different types of credit
There are different types of credit depending on the purpose. For private individuals there are mainly two classes:
● earmarked loans
With the earmarked loan, we have to determine and provide evidence of what the borrowed loan will be spent on. Typical loans of this type are available for mortgage lending or car purchases. The advantage of this is that the conditions are better than for loans without a purpose. Since the bank deposits the object to be financed as collateral, they are willing to give lower interest rates.
● Loans for free use
With non-earmarked loans, we apply for a loan that we can spend as we please. In this case, the banks charge higher interest rates. Typical loans for free use are, for example, an instant or consumer loan.
Common forms of credit with different repayment options
These types of credit can also differ in that how to pay back the borrowed money Common are:
overdraft facility
The term overdraft facility we know from checking accounts where he gives us the opportunity to overdraw the account with an interest fee. When we open a checking account, or over time, the bank allows us an overdraft facility. This often depends on how regularly we deposit.
Since we don’t need an application for the loan, we can use it immediately. The interest charges are usually very high. In this case, using a credit card is usually more suitable, especially if the monthly payments are interest-free.
line of credit
With the credit line, for example, we receive a second account in the form of a credit card account that is linked to our checking account. There we have an “on demand” loan, which we can use in an emergency. The amount of the credit limit is determined with the application.
When we use the call credit, we pay interest and monthly installments on the amount used. Since the interest rates are lower than with an overdraft facility, the credit line is more worthwhile as a spontaneous loan.
installment loan
Various forms of credit can be paid off as installment loans. In this case, we pay the borrowed amount back to the bank on a monthly basis. To do this, we make fixed shares of the total price on which interest is calculated. The higher the stakes we pay back, the lower the premium we end up paying. We can often repay the full remaining amount early with a special repayment.
The installment loan is suitable, for example, for the short to medium-term financing of high-priced purchase requests. For loans such as student loans or car financing, we have to apply for a loan agreement. The interest rate, the installment amount, the term and the loan amount are determined. In the case of particularly high loans, banks also require collateral, which we have to deposit.
real estate loan
When it comes to real estate financing, there are special types of loans that due to the particularly high amounts and long contract terms develop:
● Amortization or installment loan: The borrower pays a consistently high repayment rate over the term. However, the interest burden will decrease over time. In the beginning we pay high monthly rates that decrease over time.
Due to the high repayment rates, the repayment loan is suitable for paying off the loan as quickly as possible. However, we are rarely able to pay off these loans early by making special repayments.
● annuity loan: Compared to the amortizing loan, we pay consistently high monthly installments here. Its amount is also determined by the repayment and interest portion. However, the interest rate does not decrease over time. The interest rate is fixed for a certain period of time. This minimizes the risk of unexpected additional costs due to interest rate fluctuations.
The higher the repayment, the lower the interest that accrues on it. If we choose a high repayment, the remaining debt will be paid off faster and the loan will be completed faster.
Conclusion
If we have a dream that we want to realize but cannot pay the full price for it, the loan will help us. As long as we can afford the monthly installments, we have the opportunity to plan our payment transactions in such a way that we can still make the purchase directly. There are different forms of credit. They differ mainly in how we have to pay back the borrowed money and what the interest on the amount is. Online comparisons help to find the loan with the best terms.
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