The effective annual interest payable and the loan term affect the total cost of borrowing. Consumers receive a loan with low interest rates if they carry out a price comparison before applying. In most cases, borrowing from the house bank leads to unnecessarily high costs. This applies even more when bank customers use the overdraft facility or even the partial payment function of a credit card for convenience.
What factors affect the interest rate?
Online credit is almost always associated with cheaper interest rates than a loan agreed in the bank branch. Some of the financial institutions pass on the cost savings that can be achieved thanks to automated borrowing to their customers. For most financial institutions, the loan term also affects interest costs. While long contract terms increase the risk of default and uncertainty with regard to refinancing costs, banks with particularly short terms have to spread the costs involved in lending over a few installments and therefore increase the effective annual interest rate.
The greatest likelihood of getting a loan with low interest rates is offered by medium terms. The credit price comparison does not show an identical interest rate for every borrower for all banks. Instead, many financial institutions state that interest rates are calculated based on creditworthiness. In this case, the interest rate depends either exclusively on the Credit Bureau score or on a credit rating determined by the bank. The sole consideration of the Credit Bureau score value facilitates automated application processing.
Since Credit Bureau does not know the income of individual consumers and therefore cannot take it into account when determining the score, a creditworthiness value calculated by the bank reflects the default risk more accurately. Applicants with low credit ratings are most likely to get a loan with low interest rates if they take out the loan with another person.
Special loans reduce or increase the interest rate
Some special loans reduce the interest rate considerably, so that almost every customer gets the desired loan with cheap interest. This applies above all to car loans, but also to many installment agreements. With a car loan, the car bank offers the cheapest interest rate, while taking out a loan through an independent bank enables a discount on the vehicle price and, with good negotiating skills, leads to lower overall costs than the cheaper loan. On the other hand, the Autobank finances models for which sales promotion is necessary at special conditions.
In the case of installment payment offers in the mail order business, a purchase price comparison is required in addition to the interest rate comparison. A small partial payment surcharge with favorable sales prices can be cheaper in individual cases than the zero percent financing of a higher goods price. Consumers do without some additional services if they want to take out a loan with low interest rates. The instant loan is ideal if the loan customer has to have the money within a short time. However, it is associated with higher interest rates than loans with normal processing times. In many cases, installment protection insurance makes a loan unnecessarily expensive, especially since the insured risks are partially covered by life insurance or the survivor protection provided by private pension insurance.
When applying for a loan online, consumers make sure to remove the check mark that is often set in advance from the credit default insurance. A private pension insurance is also suitable to take out a loan with low interest rates in the form of its loan. The insured uses his own payment claims as collateral so that there is no risk of default. Employees inquire with their works council whether there is a company agreement on the granting of employee loans. These are usually cheaper than bank loans.