A brief introduction to common mistakes when calculating loans
May we introduce? Here are the most common mistakes made when calculating personal loan costs:
- Confused Interest Rates
Surely borrowers or those who want to become one have heard of it. We are talking about effective and nominal interest rates, which are often confused with one another. The loans in Switzerland are calculated using the effective annual interest rate, which is the most important cost indicator. The monthly payments and the total loan costs are derived from this interest rate. If you compare the interest rates shown on loans, you will find that it is not the nominal interest rate.
- Go for low interest rates
Anyone interested in a personal loan may have heard of a minimum and a maximum annual interest rate. An interest margin is usually given here, which is between three and eight percent, for example. The prospective borrower is already happy because the interest rates currently appear to be very low, and is then bitterly disappointed. 8.5 percent should be paid as interest? Behind this is a deliberate tactic by the banks who want to attract customers with apparently low interest rates. However, the interest rates are indicative and therefore not binding. Only those with the best credit get the low interest rate, everyone else can dig deeper into their pockets. Only the final loan offer, on which the actual loan costs are shown, is decisive. Minimum interest rates are therefore not suitable for a loan comparison.
- Forget the runtime effect
The longer a personal loan runs, the higher the costs, because the longer the term, the higher the interest. This is often underestimated by borrowers. Even if this increases the monthly burden, it is always advisable to give priority to a short term for the loan. It is only important that the monthly burden does not become so great that other payments can no longer be made and there is a risk of debt.
- Forget about early repayment
Borrowers are gladly warned against exercising their right to early loan repayment. They are scared that the penalty interest will end up having to pay even more money to the bank. But they forget that they have to pay a lot of interest for a longer term. Therefore, only a more precise comparison helps: How much do I have to pay if I repay the loan now and how much money do I have to pay if I use the full term with the usual interest? Most of the time, the savings potential becomes apparent, which the banks prefer not to know about.
Conclusion: Loans check carefully
Many borrowers pay way too much money to the banks because they failed to do a personal loan price comparison before completing it. Or because they let themselves be blinded by the promised low interest rates and were actually charged with a much higher interest rate because their creditworthiness was assessed less well. In order to save money in the end, it only helps to carefully check all loan offers in all points, do the calculations and compare point by point!
