Thanks to the Internet and digital application processing, it is often only a matter of hours to take out a loan. But if you make decisions too quickly, especially regarding the term of the loan and the resulting monthly installment, you could find yourself in financial difficulties.
If your own financial liquidity is limited and does not permit necessary purchases and/or repairs, taking out a suitable loan is often the only solution. The number of credit offers is large, and by using a credit comparison, it is often possible to “find” the right credit quite quickly. All too often, attention is focused on the classic characteristics of a low interest rate and a low monthly rate. Especially the low monthly rate for the desired loan is often the decisive element when choosing a loan.
Low loan rate sounds tempting, but can be expensive
But this is exactly where a certain danger lies, because it is often much cheaper to choose a higher loan rate, even if this is more of a burden on your own budget.
The higher the loan rate, the cheaper the loan.
But why can a higher credit rate save a lot of money? And how can a certain financial flexibility be guaranteed? In addition, the question then also arises, which amount of a loan instalment is then actually individually suitable?
Low loan rate = long term = high interest payments
The amount of the installment for repayment of the loan always depends on the term. And the longer the term, the more interest must be paid. Even with a low interest rate, a considerable amount of interest payments alone is incurred over the long term.
Which in the reverse conclusion means that the shorter the term is chosen, the smaller the sum that has to be paid for interest payments alone. The price for this is that although the monthly installment to be paid for the repayment of the loan increases with a shorter term, the loan as a whole becomes more expensive. How much can be saved with a short term, therefore, depends mainly on the amount of the loan and the interest rate.
Important: How much credit rate can I realistically afford?
Basically, before taking out a loan, the question should be asked how much credit is actually needed and can be repaid. In order to find out how much a monthly loan installment can actually be paid, while maintaining the necessary financial flexibility, it is advisable to use the classic budget calculation. Which means nothing else, that all regular expenses of a month are compared to the monthly income. The deduction of all expenditures from the income is the sum of the monthly disposable income. Within this free amount, the maximum payable monthly loan instalment can then be determined.
In addition, a credit calculator should be used with which various scenarios can be simulated with regard to different interest rates, maturities and the resulting credit rates.
The consequences of choosing too high monthly credit instalments
However, the use of generally too high credit rates should also be avoided. Because too high credit rates almost always mean a maximum restriction. And this restriction usually means the loss of any financial (residual) flexibility: If, for example, another problem arises during the term of the loan (new car, unexpected workshop bill, high additional payments for ancillary costs, etc.), it is once again not possible to resort to one’s own financial resources to solve the situation.
How much financial leeway, even if it is already burdened with a loan instalment, should be chosen with care. In this respect, after calculating a maximum affordable loan instalment, this amount may have to be reduced slightly.