Installment loan long term

Before applying for a loan, there are many questions to be answered: should the loan be earmarked or freely available? What are the interest rates? What details (special repayment, loan loss insurance) are there and should be considered? But perhaps the most important question that the bank will ask is: what rate can you pay monthly? In other words, should the installment loan have a long term or not?

The interaction: The monthly installment of the installment loan and the long term

The interaction: The monthly installment of the installment loan and the long term

In principle, it is only a mathematical calculation: the longer the credit is dated, the lower the monthly installments are. If a installment loan is to have a long term, it means you want to repay as little as possible monthly amounts and keep the burden low.

However, it should be remembered that the longer the term for a loan is chosen, the longer an interest charge. Banks usually offer maturities of twelve to 72 months. The 72-month maturity is also the most attractive for them, as the borrower has to pay six times more interest than, for example, the twelve-month term, as well as compound interest.

The installment loan and the long term: find the optimum

The installment loan and the long term: find the optimum

For the borrower, therefore, it is important to determine the optimal value at which he only pays the installment he can really afford, but does not incur too great a loss because he has to pay too much interest. Banks look very carefully at the proposal of the repayment term for the loan application, because this value conveys much about the respectability of the borrower. Usually, the following guidelines apply: Most people have no problem repaying up to five percent of their monthly income as a rate.

As a rule, banks reject these suggestions without any problems. If the proposed installment is between five and ten percent of monthly income, financial institutions will scrutinize more closely. If it is more than ten percent, banks tend to refuse, as these rates would put too much of a financial burden on the borrower, which the bank fears will not be able to shoulder them.

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