A loan with a long term brings various benefits. He can also present himself negatively.
Namely, when the term is artificially prolonged. When a loan with a long term useful and what must be taken into account when it is taken, learn here.
Why a long-term loan?
Taking out a loan is very much in vogue. It’s probably not a long time before you decide whether to make a desired investment quickly or rather slowly.
Long-term credit – even with a request rate – up to 144 months
Why save a lot of money when it’s so easy to take out a loan? The focus is not only on small loans with a short maturity.
Also, large loan sums, which automatically bring a long term, are very popular. They are suitable in many ways and can be perfectly adapted to any project.
The long-term loan is usually chosen when large loan amounts are to be taken up. For example, when a property is acquired or an existing property is to be renovated.
Even start-ups usually only work with a large loan. Without start-up capital, hardly any successful self-employment will work.
When do you talk about a long-term loan?
As you already know, banks offer loans with very different maturities. You can borrow money and pay back within a month.
But you can also borrow money and distribute the repayment over twenty or even more years. In general, the banks speak of a long term, if this is over five years.
However, you personally should not cling to such general information. Only you can decide what constitutes a long term for you personally.
It is generally advisable not to artificially prolong the term of a loan. Long maturities bring not only benefits.
Long Term Credit – Benefits
Probably the biggest advantage of a long-term loan is the fact that the monthly burden of the loan can be kept as low as possible. Small loan installments do not burden the monthly budget too much, so there is no high risk of default.
There is also the option of repatriating the loan after a certain period of time. This can make a better offer be used, which can bring additional benefits.
Long Term Credit – Disadvantages
Where there is light there is also shadow. This is no different for loans with a long maturity.
As nice as the small installments may be, which harmoniously integrate into life, they are detrimental. Especially if you look at the cost of credit.
The most noticeable are the disadvantages of the effective interest rate. Interest must be paid so that the bank earns some credit.
This is completely normal and does not work any other way. What many do not consider: Interest is paid monthly. This means – the longer the term of the loan, the more interest you have to pay.
A long repayment period makes the loan more expensive. And immensely.
Especially if you have to repay a large loan amount, the additional costs may be in the four-digit or even the five-digit range. So think carefully about how generous the runtime really must be.
In addition, insurance for the loan, such as the residual debt insurance or the term life insurance with the term of the loan are becoming increasingly expensive.
Before you decide on a loan offer, you should always compare different offers. This is immensely important for a loan with a long maturity in order to achieve the lowest possible effective interest rate.
Also, look for a good credit rating. Only that will give you the favorable effective interest rate.
Since it can be assumed that the long term is accompanied by a large loan amount, sufficient collateral should be available. In addition to the fixed income and the positive Schufa, the bank will demand additional collateral.
Most likely a guarantor or at least a residual debt insurance or a term life insurance. Bauspar contracts, capital-forming insurance or material collateral are welcome.
The bank will contact you and make suggestions. If you finance a property, then the property is taken as security.
The bank can be registered in the land register so that it has direct access in case of payment defaults. In such a case, always ensure that all installments are paid on time and in full.
Use a loan calculator for your comparison. This will not only show you current loan offers.
It also allows you to experiment a bit with the runtime and monthly rates. See how the installment changes at runtime and see what savings are possible with a shorter duration and a particularly low effective interest rate.
It’s definitely worth it.