The interest rates for loans seem to continue to fall – but does everyone really get such an interest rate as advertised? You hear from many sides, especially credit institutions, how cheap their loans are and how little interest you pay with them. In fact, the interest rates on loans continue to fall and the borrower pays less for the loan. However, you should not let yourself be carried away by the cheap offers and blindly conclude the loan contract, because often with these cheap loans additional costs can be hidden.
A common mistake in the loan amount
One mistake that many borrowers make when it comes to seemingly cheap loan offers is that they borrow more money than they actually need. Of course, it is also tempting to pay low interest on a loan and so many borrowers think they have to take the opportunity and take out a higher loan amount than is actually required. Such a mistake can quickly end up in a financial emergency, because you underestimate the costs that come with the monthly repayment rates. Therefore: Always only borrow as much money as is really needed.
Balance your own household!
Of course, before you conclude a loan agreement, you have to draw up a small balance sheet and compare income, costs and expenses of your own household. This gives you a quick overview of your finances and you can also use this balance sheet to assess how high the monthly repayment rates can ultimately be. Another factor is the term of the loan: if you have an open-ended employment contract and your position in the company is secure, you can also assume that your income will remain roughly the same until the end of the term and that the balance sheet initially set out is still rough true – at least on the income side.
Look closely at the interest and other costs
Before you finally conclude the loan contract, you should focus on various things about the loan – for example, the interest on the loan. Promoting the loan and how cheap its interest is doesn’t really tell you how much interest you as a borrower will ultimately pay. The interest rate of a loan is usually tailored to the individual borrower and cannot be generalized. This can be illustrated with the example of creditworthiness: If the borrower cannot have a certain creditworthiness that the bank would like, the interest on the loan can rise quickly. The advertising assumes an idealized borrower, who can of course have a brilliant credit rating and therefore also pay less interest.
There are also additional costs to the loan that should not be taken lightly. These costs are not included in the interest rate to be paid by the borrower, but are treated separately. In this respect, the borrower can also get a little surprise here. An example of such costs are the estimated costs, which play a not insignificant role. Such estimation costs can actually only be compared by means of a repayment plan – this shows how high the real costs for the respective loan are.