Anyone who enters the keyword “credit” in the popular search engines on the Internet immediately receives a long list of research suggestions. They start with the legal basis, go through the interest comparison with the help of an online calculator and go all the way to striking advertising for loans at top conditions and loans without KSV. The flood of information suggests what consumer advocates have been observing for a long time: taking out a loan is no longer unusual today.
Every household has already taken out an installment loan to finance a car, a home renovation, a television, a computer or even a trip or a dentist’s bill. Despite all the differences in the loans, they all have one thing in common: it is a payment obligation. The lender requires the loan money to be repaid on time at the agreed time. The loan is not free of charge, because the borrower pays a fee for it. So what do you need to know when taking out an installment loan and how do you find cheap interest?
How does an installment loan work?
In principle, an installment loan is money that the borrower borrows from a lender. The money is not repaid in full, but in several installments. The borrower therefore repays a fixed portion of the money borrowed each month. As a result, the term of the loan extends over several months and years. Depending on the amount of the loan, the contract term can vary from one year to 84 months or even 96 months. Longer terms are not common for an installment loan, but can be negotiated depending on the bank.
In addition to repayment, there is the fee that the borrower has to pay to the lender for the loan. This fee is known as interest. The lender is usually a bank, but it can also be a private lender. For the lender, the lending corresponds in principle to an interest-bearing investment. That is why more and more private investors are interested in acting as lenders if they want to invest a certain amount at attractive interest rates. Most banks limit the loan amount for an installment loan to around $ 50,000. This usually does not require separate collateralization. This means that the lender trusts the borrower’s creditworthiness without receiving real collateral in return. Such countervalues can be, for example, the lien on a property, a guarantee from a solvent guarantor or a pledge in the form of a motor vehicle.
Who can apply for an installment loan?
From a legal point of view, the borrower only has to fulfill a few conditions. He must be fully legally competent, which means he must be over the age of 18. As a rule, a permanent place of residence in Austria must be provided and proven if necessary. The borrower must have a checking account with a bank in Austria. The payment of the money is processed via this account. In addition, the credit installments are debited.
In addition to the legal requirements for lending, there are the conditions of the banks, which the borrower must also meet. Although popular advertising often says that anyone can easily take out a loan on attractive terms, it is a bit different in reality. In its own interest and in the interest of the borrower, the financing bank checks very carefully whether the loan can be repaid reliably and on time. In order to be classified as creditworthy, the borrower has to meet a number of other conditions.
How is the credit rating assessed?
Creditworthiness is the ability of the borrower to meet his repayment obligation in accordance with the contract. Since an installment loan is usually repaid over several years, the bank does not only consider the short-term solvency of its contractual partner. Rather, it will keep an eye on the entire period of the contract. In order to check the creditworthiness – also known as creditworthiness – in depth, the bank first looks at the regular income of the borrower. Customers who have permanent employment and who have a fixed income as employees or workers have the best chance of cheap financing.
It is usually more difficult for the self-employed to obtain a loan on attractive terms because their creditworthiness is often not rated as positive. This is because the income of many self-employed people does not flow as regularly and at a constant level as that of an employee. Another hurdle when assessing creditworthiness is the KSV. Before applying for a loan, you should check that the KSV does not contain any negative entries. In principle, this can be irregular payment of any kind. If an entry raises the suspicion that the borrower has not met his payment obligations on time in the past, the bank will assess the creditworthiness negatively and will usually reject the loan application.
How is the credit rate composed?
The loan installment consists of the repayment and the interest. Repayment is the portion of the loaned amount that the borrower has to repay each month. The interest is added as remuneration. With an installment loan, the loan rate remains constant. However, the relationship between repayment and interest changes. Since the interest component is always calculated on the remaining debt and this decreases with each repayment, the interest component in the loan installment becomes smaller and smaller. In return, the repayment increases. The credit rate should be calculated so that it can be reliably paid over a longer period of time. In principle, it is desirable to set the repayment as high as possible in order to be debt-free again more quickly. However, if the loan rate increases due to a high repayment so that the repayment per month is at risk, it is better to start with a low initial repayment and accept a longer loan term.
How do you find a cheap loan?
Those looking for an installment loan at low interest rates have to compare offers. Although the interest rate level in Austria has been quite low for some years, the banks’ offers still differ considerably. For a comparison of interest rates, you can of course contact different banks on site and ask for a loan offer. However, the online loan comparison works much easier and faster. There are some comparison calculators on the Internet that are highly recommended. The borrower only has to enter some key data such as the desired loan amount and the contract term and immediately receives a compact overview with all banks that offer a corresponding installment loan. When comparing credit, one should pay particular attention to interest rates and special conditions.
How to check interest rates in a credit comparison
You can usually see them at a glance at a glance at the overview of the loan offers: The interest is listed in a credit calculator in a rather striking and clearly visible manner. In a good comparison calculator it is possible to sort the offers according to the amount of interest. This gives you a quick overview of which providers are offering particularly attractive conditions. Before you immediately jump on the bank with the lowest interest rates, you should note that the interest rate is only an approximate figure. The final costs are only known after the credit check and approval, when the bank sends the loan agreement.
The calculator also shows how the bound interest rate and the effective rate differ. The borrowing rate is based on the interest rate level on the market, the effective interest rate includes the processing fee in addition to the borrowing rate. With an online loan, the two should differ only slightly. The offer should also state whether the interest is credit-related or whether the bank determines its costs regardless of creditworthiness. With interest rates dependent on creditworthiness, borrowers with a high income have chances of very attractive conditions. But those who earn less are better advised with interest rates that are independent of creditworthiness.
It depends on these special conditions
In addition to the interest, the special repayments and the total repayment of the loan also play a role for most borrowers. You can recognize a good offer by the fact that special repayments can be made at any time free of charge. The total repayment should also be possible at no additional cost before the loan agreement expires. This gives the borrower the opportunity to make an additional payment in the event of unexpected incoming payments and to repay his loan more quickly.
If you have selected the bank with the best conditions from the offers, you can usually apply for the loan online immediately. Some lenders offer an installment loan as an instant loan. The credit check is then carried out online using the borrower’s data. An instant loan is usually an option if it is a small loan amount. It can be interesting if you need the money very quickly. With a classic installment loan with online application, you have to expect a processing time between three and ten bank working days until the credit check is completed and the money is available in the account.
What about loans without KSV?
“Loans without KSV” are often advertised, especially on the Internet. This is financing that is not entered in the KSV and for which no extract from the KSV data has to be submitted. Such financing is usually provided by banks in Switzerland, because the credit check mainly focuses on current income. (Or it is a question of very small amounts of money) The borrower should always check whether such a loan is suitable, taking into account the individual case.