Loans from local banks

Demand for loans has steadily increased in recent years. More and more consumers rely on personal loans to finance their planned expenses. Most people use the offers from their local banks to obtain the money they need in the form of a loan. Mortgages or property financing are also often taken out with banks.

However, offers from lenders such as local banks have a disadvantage: they are often very expensive and inflexible. In most cases, the bank advisor sets the terms such as the loan term (also called loan duration) for the desired credit. The repayment installment is also frequently determined by the bank advisor. Because the house bank entails some disadvantages, loan comparisons should be carried out.

The loan term can often not be influenced by the borrower. Very few people know how the loan term is calculated and what affects it.

Which factors influence the loan term?

The loan term is influenced by many different factors. For most of these factors borrowers at their local banks cannot influence them.

The loan term is determined by loan amount, interest rate and installment. With these three components, borrowers can calculate the loan term for their credit with the respective lender in a few seconds. For installment loans, a fixed interest period can be set so that the interest rate does not change during the entire term. Without a fixed interest period, the interest rate adjusts to current market conditions. To avoid potentially higher costs, a fixed interest period is advantageous.

Example: factors that influence the loan term

A simple example illustrates how the loan term is affected by the components mentioned:

• A loan with a principal amount of €10,000 is granted at an interest rate of 5%. The monthly installment for the loan is €150. Borrowers will have to repay the loan over a term of approximately 70 months.
• If the installment is increased, the term shortens correspondingly. If the interest rate is increased, the loan term lengthens. For this reason, a higher interest rate always requires a higher installment to prevent costs from rising too much. A higher interest rate increases the total cost of a loan. At the same time, if the installment is not increased, the term will lengthen.

As a rule, repayment of a personal loan should take place in about 5 years. Banks and financial service providers usually prescribe this loan term. If the requirement is that the loan should be repaid in 60 months, the repayment installment to be paid is automatically determined.

A loan with a principal of €10,000 that is to be repaid within a period of 60 months (5 years) therefore requires an installment of about €200. Consumers can thus easily calculate which installment they must pay for the required loan at a bank.

Repayment of the loan can also take place before the end of the planned loan term. However, the bank may demand a prepayment penalty in this case. The bank requires the prepayment penalty because it calculated with the interest payments and these would no longer be received in the event of early termination of the loan.

Use MAXDA's loan calculator

It is still difficult for customers to calculate the exact loan term for the desired credit. For this reason, interested parties should use the many offers available on the internet. Using loan calculators offered online enables borrowers to calculate the loan term very easily.

Consumers can also easily determine online what effect increasing the installment has on the loan term. The change in total costs can also be clearly observed.

The loan calculator is also interesting for consumers because they can see how the term of a loan changes when the interest rate is increased. In this way, interested parties gain a sense of how important low interest rates are for a loan.

Compare loan terms and conditions online

The terms and durations of loans from local banks are usually rather unfavorable. Consumers now have the opportunity to choose from a very large selection of loans online. Financial service providers offer users the possibility to take out very affordable loans. In many cases borrowers can set the installment themselves.

This way they determine how long their loan will be repaid. An interest rate comparison also ensures that customers really get inexpensive loans. Comparing different offers is possible on various websites without problems. Interested parties should definitely compare the current interest conditions online before taking out any loan.

If the interest rate is low, the loan term is also shorter. Therefore, comparing interest rates helps reduce the loan term and is advantageous. Very many customers still forego a comparison and for this reason pay very high interest rates.