In the bank daily the most different loans are assigned, among them numerous classical installment credits. However, depending on the purpose, it may be a better choice to opt for a special purpose loan, as this can usually save a lot of money.
Classic installment credit
A classic installment loan, that is, a loan that lacks purpose, is issued by the banks for free use. This means that the desired loan amount can be used as desired, so the credit institutions do not require any proof in this regard. A typical use of classic installment loans is, for example, the purchase of new furniture or even a new TV. But it is just as well possible, for example, to buy a used car.
However, borrowers must expect that such a loan will incur very high interest rates. The background lies in the fact that the loan amount can be freely used as desired and the banks hedge the associated higher risk with a higher interest rate.
Classic installment loans, however, offer a very high level of planning, as they are simply paid off each month in constant installments. Once the last installment has been settled, the borrower has fully paid the loan.
In a dedicated loan, the bank benefits from higher security and borrowers from a lower interest rate.
Assigned loans are given by the banks, as the name implies, only for a specific purpose. This means that the banks demand corresponding proof that the respective loan amount is really used for the stated purpose. Since this is a variant of the classic installment loan, most earmarked loans are also paid each month, at the same rate.
Car loans and real estate loans are among the typical earmarked loans. The big advantage of such a loan lies in the lower interest rate, which the banks usually assign here. For a purpose-based loan, the banks benefit from a higher security.
If, for example, it is planned to use the loan to buy a car, then it is usually the case that the banks first withhold the vehicle registration. If, contrary to expectation, the borrower fails to meet his loan obligations and can not pay the monthly installments, then it is feasible for the bank to access and sell the car. The proceeds are then used to repay the loan amount.
In many cases, a real estate loan is usually given by the banks as a special purpose loan, since it is usually a matter of very high loan amounts. In the context of such a loan, to secure the bank, usually also an entry in the land register. This means that the credit institution can access the property in the event of the borrower becoming insolvent. Thus, it is also feasible for the bank to schedule a foreclosure sale. Again, the proceeds are used to settle the remaining loan debt.
For a successful lending, it is essential that the borrower meets various conditions.
Assigned as well as non-conditional loans, however, are generally only granted by the banks if the prospective borrower fulfills the various requirements for doing so. These include, for example, a safe, regular income and a good credit rating. But also on a German residence and a German checking account is generally placed a high value.
However, should the borrower not be able to meet the requirements of the bank, it is not necessarily necessary to give up the loan completely.
In such a case it makes sense to involve a second borrower or even a guarantor. However, it is important that the respective person fulfills the various requirements. If that’s the case, there should be nothing stopping successful lending.
However, the guarantor or the second borrower must be aware that if the borrower unexpectedly fails, ie if he no longer meets his loan obligations, he will have to pay for the remainder of the loan. This means that the guarantor / second borrower is fully liable in this case. Accordingly, the inclusion of a guarantee or co-signature as a second borrower would be well considered.
Also, it should not be forgotten that such an approach may also affect the good relationship with the individual. For example, disputes have already occurred in a variety of financial matters.
Advantage: earmarked loan
An earmarked loan is usually much cheaper than its “relative,” the discretionary loan.
Depending on the type of loan, it may be advisable to resort to a special purpose loan instead of a discretionary loan. As mentioned above, the last-mentioned variant offers the advantage that it often benefits from a significantly lower interest rate. Depending on the loan amount, this makes it possible to save a larger sum.
So if, for example, a new vehicle is desired, then a car loan is usually a better choice than a classic installment loan. Since the purpose is clear anyway anyway, no further flexibility is necessary here. The car loan, as earmarked loan, but scores with a lower interest rate, so that the vehicle purchase cheaper.
In the case of car loan, however, there is also another advantage: Thanks to the loan, the prospective car buyer is thus able to pay the desired vehicle in cash. Thus one is able to negotiate with the car dealer a cash payment discount, which grant many companies. Accordingly, here again can save a lot.
So if it is feasible, an earmarked loan is usually the much cheaper option and thus offers an ideal way.
Due to the many different offers, it is advisable for prospective borrowers to compare the various loan offers well in advance.
In the area of discretionary and earmarked loans various offers are offered by the various banks. So it’s worth keeping your eyes open and comparing the different loan offers. These differ, for example, in the amount of the respective interest rates.
In a comparison, however, it is advisable to compare less the nominal interest rate, rather than the effective annual interest rate. Because only in the last mentioned all credit costs are included, so that the effective annual interest rate offers very good for comparison.
In addition, the banks commonly offer various special services. These are, for example, the suspension of a monthly emergency rate and a variable repayment rate. Likewise, it is possible for some banks to make special unscheduled repayments. Because of this, one should not miss the opportunity to carry out a credit comparison in advance, on the one hand to protect one’s own account and, on the other hand, to profit from the manifold benefits.