Save by repayment
The popular opinion about loans and optimal terms can easily be summarized: The shorter the term, the cheaper the loan has to be. But that's a mistake! At least in some cases, a runtime that is too short can be problematic rather than helpful. But: If you tend to have a longer repayment period when concluding the loan contract, you can still redeem your loan earlier.
The interest that would have accrued for the remaining term then expires. The consumer credit law stipulates that it must be possible to repay the loan before it expires, but this procedure must not make the loan more expensive. The outstanding loan interest that would have accrued for the entire term then expires. The point is that lawmakers want to ensure that borrowers don't face any obstacles if they want to pay off their debts earlier.
Paid too late? Beware of default interest!
When applying for a loan, it is checked whether the applicant will be able to repay his loan within 36 months. This is intended to provide some protection against over-indebtedness. Important: The term of the loan should always be calculated so that it can be repaid without any problems. For this purpose, a budget is drawn up that includes all income and expenses as well as a buffer. Two variants are possible:
- The term is chosen longer than necessary
In the course of repaying the loan, the borrower notices that he has additional financial resources or that his monthly financial scope is greater than expected. He can redeem the loan prematurely, the interest that is still due for the payment months that are now no longer applicable.
- The term is too short
There is sometimes a problem here: the borrower cannot meet his payment obligations. With a short loan term, the monthly burden of principal and interest payments increases. If these cannot be mastered, there will be delays in payment and thus due interest will be due.
Default interest makes a loan more expensive and is also registered with the central office for credit information. In turn, the creditworthiness of the person concerned deteriorates sustainably and future borrowing can also be problematic or very expensive.
In summary: good planning of the loan term is important
Please plan a sufficiently large buffer in addition to the regular expenses when planning the possible loan. What if the car breaks down or needs renovation? Such expenses are often forgotten in the monthly planning. In any case, prevent default interest from being incurred; in agreement with the lending bank, the loan agreement may be changed again and the term may be extended. However, this also carries the risk of a higher interest rate.
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