Before taking out a loan: Always make a comparison

Message from 02/03/2023

In many situations, a loan is a good and sensible way to finance larger investments. However, the search for the right loan can quickly become overwhelming, because there are numerous offers. It is therefore important to compare them with each other and to consider a few points in order to find a tariff on favorable terms.

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What is the credit used for?
Which loan suits your own needs depends primarily on the intended use. The loan offers are often based on the different purposes. For example, a consumer loan (credit without earmarking) – like the classic installment loan – can be used for almost all projects. But sometimes a special purpose loan can be a good choice, too – for example, in the case of a home loan (to finance a renovation or refurbishment of your own home) or a car loan (as an alternative to leasing a car or to enable a cash purchase discount at the car dealership).

It should be noted that the conditions of the individual types of credit can vary greatly. You should therefore only ever compare the offers within one type of loan, as is possible with the loan comparison on, for example.

Which interest rate model is the right one?
There are loans with fixed and variable interest rates. The variable interest rate is always adjusted to the current interest rate market. So it can sometimes be higher and sometimes lower. It is therefore best suited for short-term financing at low interest rates.

The fixed loan interest gives you greater planning security because it does not change over the entire term or the agreed period. – even if the conditions on the interest rate market change. A fixed interest rate therefore offers stability. This can be an advantage, especially for long runtimes.

In general, there is no such thing as “right” or “wrong” when choosing the type of interest. Because the interest rate model should always fit into the respective financial framework. In addition, the flexible interest rate for installment loans is a big exception in Germany. Loans are usually offered with fixed interest rates.

Pay attention to possible additional costs
If you want to compare loan offers optimally, you should use the effective interest rate as a guide. Unlike the debit interest, this includes all costs incurred. It describes the interest rate that you actually have to pay for the loan. It is particularly important to check the credit provider’s list of prices and services for additional costs. Such costs can sometimes arise with supposedly cheap interest rates during the loan term. This is possible, for example, when changing the payment plan, in the case of installment breaks or special repayments.

What else do you get in the overall package?
The interest rate certainly plays an important role in the loan comparison. In addition to the possible additional costs, there are other factors to consider. Of particular interest to borrowers are usually transparent and fair conditions, flexible adjustment options and payment options. So you should always see what a loan can offer in terms of free extras and services.

A loan must match your personal life situation. Therefore, the choice of a loan should be well thought out. Good planning is very helpful. A loan is often a good alternative to an overdraft facility. If you keep overdrawing your overdraft facility, you should alternatively think about a cheaper credit line. (prm)

Author: Bettina Salarno