Installment loans, also referred to as purchase credits, are among the most widely used types of loans in credit comparison. The lender gives the borrower a loan for a certain amount of money at a fixed interest rate.
The borrower repays the loan, including interest and any applicable fees, back to the lender in installments previously set in amount and number.
For installment loans, there are many different offers. It is worthwhile to compare at which provider your own credit requirements can be met on the best terms.
Some prefer providers who advertise with particularly long maturities, while others score points by strikingly low interest rates.
Advantages of a installment loan
Probably the biggest advantage of an installment loan is its predictability. The calculation of the monthly installments includes both the repayment installments as well as the interest accrued during the term of the loan and any fees borne by the bank. The amount of the installments therefore does not change during the entire repayment period. The interest rate is i
Individually determined in advance and is therefore independent of the general developments in the financial markets.
Another advantage is that installment loans are usually given as a blank loan, which means that the borrower does not have to deposit any collateral. The only security most lenders require is a payroll transfer, which means that the lender can get the installment directly from the borrower’s salary should it fall behind with the payments.
To get an installment loan is usually extremely uncomplicated. Nearly all merchants selling high-priced goods such as computers, furniture or cars offer financing options. The dealers cooperate with banks and provide the installment loan necessary for financing. In such a case, therefore, not even going to the bank is necessary to receive a installment loan.
Another advantage of installment loans is their comparability. Lenders are required to provide the APR. The normal annual interest only describes the pure interest, which one pays for the borrowed sum. The annual percentage rate, on the other hand, includes all other costs of the loan, and therefore refers to the actual total amount to be repaid. This allows the borrower to better compare different loan offers and choose the offer that is most favorable in the grand total.
Disadvantages of a installment loan
Installment credits start at 1,000 euros and can be concluded up to 50,000 euros
Installment loans also have disadvantages, of course. One drawback is that one can easily be tempted to borrow more than one installment, since the long-term monthly installments are usually quite low. If the income situation changes, for example due to the loss of the job, the payment obligations continue to exist. It threatens over-indebtedness. In particular, if you can not pay more installment loans, the credit rating by the Private credit can be so bad that you can still get many years later, no more credit, even if the financial conditions should have improved dramatically.
Each installment loan is reported to the Private credit. The amount of the loan does not matter. If a borrower is in arrears, this is also noted, which has an influence on the scores raised by the Private credit. Problems with an installment loan can therefore later lead to unexpected problems, for example, when taking any other loan or even the conclusion of a mobile phone contract.
Another disadvantage of the installment loan is that it can not usually be accepted as a short-term loan. If you only need money for a few days or weeks, you can not usually do this with a standard installment loan. Most offers on installments have a term of at least 12 months.
The purchase by installment loan is also more expensive than the direct purchase, as eventually interest must be paid. Take, for example, a loan of 2,000 euros with a maturity of 24 months at an interest rate of 6.5 percent, the monthly installments are 89.09 euros. The total repayment is then 2,138.22 euros, which is 138.22 euros more than you have borrowed. Interest rates on installment loans are usually much higher than for mortgage loans or student loans.
Advantages and disadvantages of the installment loan in the overview
- good predictability
- Interest rates are fixed in advance and are then independent of developments in the financial market
- often no collateral has to be deposited (plain loan)
- in most cases fairly straightforward
- very good comparability on the internet
- Risk of over-indebtedness
- Loans burden the Private credit
- usually can not be accepted as a short-term loan
- A loan is always more expensive than a direct purchase, because you pay the cost of the loan