Loan comparison

Taking out a loan to finance a purchase is no longer unusual today. Many purchases — from home furnishings to wedding celebrations to vehicle purchases — are now financed with a personal loan because one’s own funds or monthly income are insufficient for the expense at that time. Therefore it can be worthwhile for the consumer to use a loan and repay the purchase costs monthly. For this, however, the borrower must also know how much they can and want to pay each month.

The range of loan offers has become very large due to intense competition among banks. Today, borrowers no longer have to make decisions about a loan application solely with regard to the lowest terms. The large number of local banks, online banks and intermediaries such as Maxda has created both more selection criteria and more confusion when taking out a loan. For the customer, the large number of providers and the wide product range of installment loans offer advantages. But the abundance of offers also means that laypersons in lending can lose track when applying for a loan. Therefore, one should take plenty of time when taking out a loan and perform thorough comparisons. In addition, the range of offers should be selected so that one not only achieves the best possible conditions in terms of the price of the loan. Moreover, the loan should be tailored as individually as possible to one’s own needs.

For a first overview of the range of loan offers, it is sensible to carry out a loan comparison on the internet. Many providers offer loan comparisons. These platforms act as loan brokers, just like Maxda Kreditvermittlungs GmbH. That means they advertise loans to interested parties and direct these interested parties to partner banks. However, you can also use comparison portals for an initial impression and perform a loan comparison there without concluding the loan contract through them. It is interesting that the loan comparison not only performs an objective comparison between individual loan offers under absolutely identical conditions. At the same time, the interested party gains insight into which additional factors come into play with the loan, that is, what additional options within the loan agreement can be expected.

Interest, fees, special repayments and other terms

Prospective borrowers of an installment loan naturally pay special attention to the costs that the loan will impose on them. Interest calculation essentially consists of three components. First, there is the loan amount. The term and therefore the monthly installment (also loan installment) also play an important role. And the third factor for calculating loan interest is the creditworthiness of the applicant. For banks, this means that an applicant receives more favorable interest rates the better the securities are for the bank. Ultimately, this can mean that the best interest rates go to an applicant who actually does not need a loan at all, because income and financial securities are so solid that there is no risk for the banks in granting the loan.

Important for comparing loans is the annual percentage rate (effective interest rate). Lenders are also legally required to use this in their advertising. Unlike the nominal interest rate, the effective interest rate (also: annual rate) for a loan takes into account all costs associated with taking out the loan. The nominal interest rate is often attractive because it is relatively low, but it only refers to the pure loan amount without additional costs such as fees. However, comparing the effective interest rate alone in a loan comparison is still not sufficient, because it is a flat rate that may not relate to the specific loan request. The level of the interest rate ultimately also depends on the loan term and the loan amount. Together with consideration of one’s own creditworthiness, an individual interest rate is then determined. In addition to interest, when comparing individual offers one must also consider other terms besides interest. Many banks charge fees for granting the loan. Fee calculations can amount to one or two percent of the total loan amount.

Special terms can also be important for a loan. A special repayment is one such special term. Especially for larger financings or when early repayment through special income is being considered, the option of special repayments can play an important role. Some banks charge fees for special repayments, while others allow special repayments without additional costs for the loan customer. If no additional costs are incurred for a special repayment and the required funds are available, this is a good way to reduce the loan amount. Special repayments are simply payments made by the borrower outside the agreed monthly installments toward loan repayment, which can ultimately lead to early termination of the contractual relationship. The same applies to early settlement of the loan. If there is a possibility that the borrower will have sufficient liquidity for early settlement in the foreseeable future, this should be discussed with the lender and contractually fixed before taking out the loan. Many providers charge for early settlement because of the lost interest. Others, however, are accommodating and, due to intense competition, waive compensation for lost interest by the borrower. Finally, the customer should agree precisely before concluding the contract which loan securities must be provided by them. Some banks, for example, insist on taking out a residual debt insurance. This, however, can lead to a significant increase in costs when offered as a package with the loan. Therefore, applicants should consider to what extent they can secure the loan. For some providers, handing over an already existing life insurance policy, which the borrower assigns to the bank in the event of loan default, is sufficient as loan security.

Clarify exact facts for securing loans

A borrower should always consider the question of securing the loan during the repayment period, even if the loan was granted on very favorable terms. High individuality is required here, because loan security should always be provided regardless of the loan amount, but a high loan amount also requires particularly good security. Life circumstances also play an important role. If the loan was taken out as a single person, but a family has since been started and the loan term is still running, a different form of securing the loan may be necessary. The options for securing a loan are diverse and tailored to the need. Security can cover accidents, unemployment, illness, or death. Some residual debt insurances now also offer integration after unemployment or illness so that installment payments can be resumed as quickly as possible in the insured event. It should be borne in mind that even a SCHUFA-free loan is not exempt from requiring loan security. That means lenders need to ensure the highest possible security when granting a loan and during the loan term. Residual debt insurance, which can now be designed very individually, is the most common protection for a loan. It comes into play when repayment of the loan is not possible. Especially for larger financings, such as mortgage financing, a term life insurance can also be a good and acceptable security for the loan for banks. This insurance, however, only covers the borrower's death. A term life insurance for two linked lives — for example, two spouses — can also be used as loan security. Especially for larger loan amounts, a decreasing-sum term life insurance can be used to reduce costs. That means that the insured sum within the insurance contract decreases over the term. This makes sense for loan security because liabilities to the bank also decrease with each monthly loan installment paid.

Types of loans

There are many different types of loans. These include, among others, the debt consolidation loan, the loan without SCHUFA, or the instant loan. A loan without SCHUFA is useful in case of a negative SCHUFA entry. In this case the check with SCHUFA is bypassed and no record of any SCHUFA entries is made. If a record shows a negative SCHUFA entry, it becomes increasingly difficult for the borrower to obtain a loan. With a debt consolidation loan, a new loan is taken out to repay the old loan that may have higher costs. With an instant loan, the loan amount is disbursed within a very short time. The borrower should already consider in advance which loan is needed for the respective purchase and familiarize themselves with the different types of loans.