The Little Basics Of Loan Types
With the right loan, nothing stands in the way of your big dream.
Whether buying a house, an apartment or a car: Great wishes often cost more than your own account can afford. Most people therefore use a loan to make their dream come true. Various types of loans are possible here. An overview.
Paying back in one fell swoop: The maturity loan
With a maturity loan, also known as a bank advance loan, the borrower borrows the required amount and pays interest on it on a monthly basis. At the end of the loan term, the entire loan amount is due in one go. There is no monthly repayment of the loan.
Advantage: The monthly charge is low with this form of loan. The borrower only pays interest on the amount borrowed. The money that is not needed can thus be invested profitably. In this way, an additional profit can be made, which makes it easier to pay the full amount after the loan period.
Disadvantage: The loan amount does not decrease over the term of the loan, but must be repaid in full on the due date. The interest payments remain constant for the maturity loan, since the interest payments are not reduced by the repayment.
Maturity loan: Suitable for whom?
A maturity loan is particularly suitable for borrowers who use it to finance a property they are renting. Here, the interest can be deducted from tax as a cost.
A maturity loan can also be useful as interim financing for the construction of a property. This avoids the premature termination of existing building society contracts or life insurance policies, which is often associated with high costs.
In principle, a maturity loan is suitable for anyone who can ensure that they can save up the loan amount during the term.
If you are able to repay higher amounts each month or if you want to live in your property yourself, you should choose another loan.
Favourable interest rates with risk: the forward loan
The forward loan is also called “interest bet” and is something for risk-prone borrowers. Banks usually offer this loan only as follow-up financing, for example as part of a construction loan. The trick: Up to five years in advance, current favourable interest rates can be secured for the future.
However, the banks require a certain interest surcharge for each month of lead time. High forward premiums are paradoxically the most attractive: this may be an indication that interest rates could rise soon.
Nevertheless, there is a risk that interest rates will continue to fall. It is annoying if you have tied yourself to a higher interest rate a few years before.
Flexible interest rates: The variable Euribor loan
Variable-rate loans are characterised by their high flexibility in interest rates. The interest rates are adjusted to a current reference interest rate after certain periods. This is usually the Euribor. This is the lending rate between banks, which in turn is based on the key interest rate of the European Central Bank. The Euribor is published daily, which gives the borrower more transparency and independence from the lender.
Short-term fixed interest rates usually allow cheaper loans in the long term. However, borrowers also take a certain risk, as interest rates can also rise in the short term.
If banks offer this form of loan – which is not always the case – unscheduled repayments are possible without restriction. The Euribor loan can then be converted into a fixed-interest loan to fix a low interest rate.
Falling monthly rates: The redeemable loan
The installment or redemption loan is particularly popular with tradespeople because the constant redemption rates can correspond to the depreciation. Independent of the interest rate, a constant monthly repayment rate is set. Overall, the rate of interest and repayment decreases over time because less and less interest is accrued. The amortizable loan is the cheapest loan due to low interest rates, but the monthly repayment instalments are high at the beginning. It is particularly suitable for larger and longer-term purchases, as the repayment phase usually takes a comparatively long time.
The classic: The annuity loan
The most common form of credit is the annuity loan. Here the monthly installment remains constant throughout the entire repayment period. However, the relationship between the repayment instalment and the interest portion changes. The interest rate decreases while the repayment portion increases. This means that the remaining debt is paid off faster and faster.
A disadvantage of this form of loan: unscheduled repayments are usually not planned. Early repayment of the loan is therefore often not possible.
Tip: Stay flexible with Credit company
This disadvantage does not apply to the instalment credit from Credit company. Special repayments are possible at any time. So you always remain flexible even with credit.
Our tip for all those who dream of owning their own property: With a construction loan from the Volksbanken Raiffeisenbanken you can make your dream of owning your own four walls come true.