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Credit: Definition and overview of loans

Loans play an important role in economic life – also for private individuals. They enable the financing of larger purchases and expenses that would exceed the currently available budget, but can also be used to increase the return on equity of an investment. However, in order to be able to use loans properly and not later to run into payment difficulties, potential borrowers should know some background information on this topic.

Different types of loans

Different types of loans

Banks and savings banks offer a range of different loans for private individuals, which can be classified based on various characteristics – such as the type of interest, term, repayment modalities or purpose. For example, there are loans with a fixed or variable interest rate, long-term loans, unlimited general loans or short-term financing, installment loans or final loans. With regard to the purpose of use, for example, car loans, consumer loans, disposition loans, training financing and real estate financing can be distinguished.

Other topics on credit

  • Loan credit
  • Loan without equity
  • credit without
  • To debit credit
  • loan comparison
  • Mini credit

Which loan is the right one?

Which loan is the right one?

Which type of loan is the right choice in a specific individual case depends on the life situation of the borrower and his creditworthiness, but also on the intended use of the loan and, if applicable, on external conditions such as interest rate developments. In principle, long-term investments, such as real estate, should also be financed long-term, while short-term liquidity requirements should also be covered by short-term financing. However, the volume of borrowed capital borrowed should in any case only be so high that the current income is sufficient to pay interest and repayment without any problems in addition to the fixed current expenses plus a “security cushion”.

Details that borrowers should pay attention to

Details that borrowers should pay attention to

When entering into loan contracts, borrowers should pay attention to some details that may only seem meaningful to them at second glance. Above all, this includes the question of the type of interest. If interest rates are currently very low, it is worthwhile, for example, to agree on a long-term fixed interest rate for long-term real estate financing. A slightly higher interest rate is usually due for this, but the borrower has secured itself in the long term against a possible rise in interest rates, which could lead to a significantly higher interest rate once the fixed interest rate expires. It is also important that a comparison of different loan offers should not be based on the nominal interest rate, but only on the basis of the effective annual interest rate, which also includes fees and additional costs.

Check current loans regularly

Check current loans regularly

Anyone who has taken out a loan should under no circumstances simply leave it there until it is regularly repaid. It is much more worthwhile to check at regular intervals whether the remaining part of a loan can possibly be replaced by a cheaper loan or whether it is worth combining several smaller loans into a single loan by means of a corresponding debt restructuring. And those who take up a relatively high-interest loan, such as the overdraft facility on the checking account or the credit line of their credit card, should check whether taking out an installment loan instead would be the cheaper solution.

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