Our recommendations for your financing – including test 2020 and credit comparison the essentials in brief
- All consumer loans are now also available online – usually on much cheaper terms than in a bank branch.
- The application is quick and easy via email and document upload.
- In favorable circumstances (e.g. with an online loan from your own bank), it only takes 48 hours between submitting an application and receiving an account.
- Credit costs are presented transparently: consumers can easily identify which loans are cheap without specialist knowledge.
- The prices for an online loan are low, since the processing via the Internet incurs only low costs.
- In the most recent credit test, the offers banks (at the online offers) performed best.
On this page Borrowing: How it works Borrowing costs Directly to the loan comparison Loans in test How much credit can I afford? Explanatory video This is how you proceed with the conclusion
- When choosing the loan amount, keep in mind: the lower the amount, the easier it is to get a loan!
- Use the loan comparison on this page. You can tell which loan is the cheapest by the effective annual interest rate!
- If you have problems with your creditworthiness, you can improve your Credit Bureau score with a few simple measures. You can find out more on this page.
For whom is a loan eligible?
With loans of any kind, the most important question before taking out a loan is always: can I afford the loan? After deducting all expenses and after considering a financial buffer, there should be enough money from the monthly income to be able to pay the monthly credit installments.
Monthly loan payments can become a noticeable burden for people with low and middle incomes. For this reason, loans should only be requested for things that are really necessary.
So it is true that a loan is not a problem if the monthly loan installments can be repaid without major worries – from the first to the last installment. The banks also pay attention to this when granting loans.
This is how a loan works
If financing is required for a specific purpose, bank customers usually choose an installment loan, since overdraft facilities (“dispos”) involve very high interest rates.
Installment loans are divided into different uses, for example car loans, real estate loans or loans for debt rescheduling (see also the following chapter). This funding can only be used for the selected purpose. If you do not want this, you can choose an installment loan without earmarking. However, this is more expensive than a special purpose loan.
That is why the purpose is important
Anyone who inquires about a loan must state right at the beginning what the loan should be used for: a car, a property or a debt rescheduling. Anyone who has chosen a designated auto or real estate loan has opted for a purpose-restricted loan.
There is also the option of specifying “Free use”. In this case, the lending financial institution does not want to know what is happening with the money – it is a so-called credit without a specific purpose. However, this is more expensive.
Small but nice difference!
Dedicated loans generally only make sense for banks if the object of purchase can be regarded as security (e.g. the car with a car loan – debt rescheduling is a special case). In this case, the item can be sold by the bank if the loan installments are no longer paid by the borrower. The remaining proceeds and any outstanding credit costs can then be paid with the proceeds of the sale.
The benefit of a special purpose loan
The bank offers particularly favorable conditions for a loan with a earmarked purpose. The background: In an emergency, the bank can sell the object of finance and receives at least part of the money again. This reduced risk “rewards” the bank with e.g. B. lower monthly rates.
The downside of earmarked credit
There is basically only one downside to a purpose-built loan: the borrower cannot freely decide what to do with the money. He has to use the money for the agreed reason: buying a car, buying a property or rescheduling another loan.
Banks can decide for themselves which loans they are earmarking for. As a rule, there are no differences here. The following uses are possible.
Car loan / caravan or mobile home / motorcycle loan
The car loan is a vivid example of purpose-built financing that is significantly cheaper than a non-earmarked loan. In the case of car financing, the vehicle is deposited with the bank as a deposit, so that the bank can sell the car in the event of a loan default. The outstanding loan costs (for example, the unpaid repayment installments) can then be paid from the proceeds.
This option means that the bank’s risk of remaining on the cost of the loan is significantly lower than that of a non-earmarked loan. For banks, this is a statistical value: loans for cars are less likely to default and are therefore cheaper as a whole. The banks use this cost advantage to win customers. The cost advantage is therefore passed on to the credit customers in the form of lower monthly installments. The hope here is that customers are more likely to opt for a loan – ideally for an in-house loan.
Basically, one can say: A loan for a car is cheaper than financing without a purpose.
Real estate or residential loan
With real estate loans and residential loans (also with follow-up financing), the situation is basically the same or similar. For example, the bank also accepts the property as collateral for a real estate loan, so that the probability of a loan default for the bank is significantly lower. In the case of a residential loan, the banks again assume that the applicant will use the money to maintain or even increase the value of their property (in the sense of a modernization loan – also read our article “Loan for roof renovation”). Statistically speaking, this testifies to sound households with their own finances – the risk of a loan default is also lower than usual for the banks in this case.
If you apply for a loan, you must present your income ratio from a certain loan amount. This is often the case even with low four-figure amounts. The bank wants to know whether the applicant can afford the loan with the available financial resources. And whether the income is so high that the expenses – including the additional expenses for the loan applied for – are still so manageable that the borrower can use the installment loan without major problems (read: pay).
A debt rescheduling loan is therefore somewhat cheaper than a non-earmarked loan. The bank knows when rescheduling that the applicant will replace the installments of a new loan with the installments of an old loan. The available monthly income therefore remains similar or, ideally, is even a little bit above the previous level.
A new loan is not a further burden when rescheduling, but rather an indication of a more relaxed financial budget. The likelihood that the new loan will default on the bank is therefore lower than with other financing. The bank in turn has a lower risk and grants lower interest rates.
Credit for free use
For free-use loans, the applicant does not have to tell the bank what to do with the borrowed money. So there is no need to submit purchase contracts or the like, as is the case, for example, with a loan for a car (here the vehicle letter is usually even deposited with the bank).
The big disadvantage, however, is that loan costs tend to be higher compared to a purpose-built loan. In the event of a loan default, the bank cannot count on the fact that there is enough money available to sell the car or apartment to repay the loan in full. Banks can pay for this increased risk with higher interest rates.
The loans mentioned above are so-called consumer loans. This means that the loans are intended for private individuals (consumers). Loans that are to be used for commercial purposes are treated separately by the lending companies and are usually marketed under the “commercial loan” label. For these loans, the applicant must prove that he has registered a business for his desired loan.
The borrowing costs
Since there are different ways to repay a loan, it is not easy for laypeople to compare the costs of the different loans. In order to make this possible, the banks must state the so-called effective interest rate.
Effective interest rate indicates the amount of the costs
If you want to find out which offer is the cheapest, you first have to look at the monthly installments as an average consumer. However, this is not correct, because the rates for one and the same loan can be significantly different if e.g. B. A final installment is agreed at the end of the contract period!
In order to give consumers the opportunity to determine the cheapest offer even without extensive arithmetic skills, the legislature has obliged the lenders to state the effective interest rate (effective annual interest rate) for each offer. On the basis of this value, offers can now be compared that are structured completely differently.
The effective interest combines all costs in one single value! The offer with the lowest value is always the cheapest. This allows you to compare loans that consist of different cost factors! (However, any residual debt insurance is not taken into account here.)
Calculation example for effective interest If, for example, an initial or final installment is requested for financing, the monthly repayment is lower than for financing of the same amount, for which no initial or final installment is paid.
|loan amount||initial rate||Total repayment||running time||monthly. repayment|
|10,000 USD||3,000 USD||7,000 USD||84 months||83.33 USD|
|10,000 USD||0 USD||10,000 USD||84 months||119.05 USD|
In this calculation example, it is not possible to determine which financing is the cheapest without specifying the effective interest rate. The monthly repayment is not sufficient here.
The credit rate consists of these cost factors
Don’t worry: If you want to take out a loan, you don’t have to use a calculator yourself. But it is still interesting to know how the loan calculation is made.
The monthly credit installment consists of the following cost factors.
The repayment rate is the part of the loan that specifies the repayment of the loan amount without loan interest or other costs. The nominal interest is added to the repayment rate.
nominal interest rate
The nominal interest is the interest that is payable on a loan each year. The credit rate therefore results from the nominal interest and the repayment rate.
Until 2010, the nominal interest was still called the borrowing rate. The borrowing rate is only given in contracts that were concluded before this date. Current loan offers are shown in the loan agreement at nominal interest.
Credit institutions are obliged to state the effective interest rate (or the effective annual interest rate) in addition to the nominal interest rate. This enables consumers to compare loans with different cost factors. Please also read the relevant section in this text.
If a final installment has been agreed, this is of course also one of the cost factors for a loan.
Incidentally, processing fees have not been permitted since a decision by the Federal Court of Justice in 2014, because the court already claims that the loan interest already includes them.
The net loan amount
The net loan amount is the amount that a borrower transfers to the lending financial institution without interest and other payment items. In other words, the net loan amount is the amount that the customer borrows from the bank. If he repays the sum, there is still interest on the loan and any further payments on top.
A cost factor: the ratio of term to monthly installments
The longer the term of a loan, the lower the monthly installments. One thing is clear: if you pay off a loan of 1,000 USD within a year, for example, you pay much lower installments than if you did it in just six months. However, banks generally offer lower monthly rates (or a lower effective interest rate) if the term is kept short.
The background: With a short term, the likelihood is greater that the borrowed money will be repaid in accordance with the contract. The risk of a loan default is therefore lower, and loan interest rates are reduced as an incentive for the consumer. However, this does not apply per se to all loan terms, but one can certainly state that a significantly shorter loan term leads to a lower effective interest rate.
Tip: Vary the term in the online loan comparison! With larger sums in particular, it is worthwhile to play through and compare all possible variants. With different terms, large differences in the effective interest rates offered can be expected.
Reduce costs with special repayments
Sometimes things go better than expected. If the household budget is well filled with additional income (for example, due to an unexpected tax repayment), you can also repay a loan early. Depending on the loan, this is either completely possible (the total amount) or partially.
Ideally, you save on loan interest!
However, take a look at your loan documents beforehand or speak to your credit experts before applying for a loan. Because it may be that a special repayment is associated with costs that nullify the hoped-for interest savings.
Loans in the test
Comparing the loan offers with each other is a challenge for independent testers: the offers change so quickly that a test that was created today may no longer be up-to-date tomorrow. For this reason, auditors are increasingly concentrating on the providers:
Who is fair and open with customers? Which bank charges costs that are not above the market average? And at which bank is the service quality right?
Since it plays a large role in the two most important test criteria (product quality and service quality) who makes the offer, credit testers often differentiate between branch and direct banks.