The term “term loan” can be understood as a normal installment loan. This very frequently chosen type of loan offers the opportunity to create financial scope, for example for purchases. The borrower chooses a certain amount here, the repayment is made in monthly installments with a predetermined term. The amount of interest accrued for the entire term is initially added to the loan amount. The rate remains constant during the term. However, borrowers need to know in advance what monthly installments they can afford, so it’s important to be careful and accurate about your financial situation.
Interested parties should compare the offers with each other, because credit institutions often only mention the nominal interest rate. However, the processing costs and other fees must also be added to this interest rate as a percentage. Only the effective interest rate provides information about the exact monthly charges. Each loan calculation must also be compared to the monthly financial scope – that is, the borrower must clarify what is more advantageous for him: a long term and a low monthly repayment or a short term and a higher monthly repayment.
If you want to protect yourself against the problem of unemployment or illness / accident, you are well advised to take out a so-called residual debt insurance. If the specified installment payment can no longer be kept due to such an event, these obligations are assumed by the insurance company.
Advantages and disadvantages of a term loan
Term interest or installment loans are particularly characterized by their relatively short processing time – provided the applicant has the necessary creditworthiness (solvency). Borrowers should be aware that they can repay the specified installments on time within the specified term. This usually requires consent to the Credit Bureau clause. If the entry is negative, the lending institution has the option to reject an installment loan at any time. The provision of collateral is not absolutely necessary for an installment loan. When inquiring through the bank, one should not be too generous here.
If you conclude a contract with a lending institution, you should make sure that early repayment is possible at any time, so that the installment loan can be prematurely replaced by a one-off final payment at no additional cost. Most credit institutions provide for a period of notice of several months in this case. If the loan repayment is an installment loan, it is common for the lending institution to summarize all different liabilities. This not only reduces the number of installments for the loan, but also the amount.
If the previous lender requested collateral for a loan, this must be transferred when the loan is repaid. This is done almost exclusively as part of a trust contract. Only when the relevant collateral has been transferred to the new bank can the new bank work with the transferred money. If a loan is redeemed because, for example, you want to take advantage of better terms at another bank, a so-called redemption fee is due. With this amount, the loan from the former bank is then repaid in full. The transfer fee not only includes the current residual debt and the interest until the transfer date, but also processing fees, transfer costs for the collateral, any prepayment penalty and the surrender value of the residual debt insurance.
If you are looking for an ordinary installment loan, you can find it using the credit comparison below. Select a bank, enter all the necessary data and in the end not only find out whether this provider can grant you a loan or not. You will also receive a list of which providers can alternatively pay you a loan and on what terms. This service is free and not binding for You.
Beware of credit increases and rescheduling attempts
Some banks offer a seemingly simple solution if the installment can no longer be paid with a current loan agreement and / or additional credit requirements have arisen. The old loan agreement is replaced and a new loan agreement with a higher loan amount is concluded at the same time. Only the bank has won here, but the debt tower is getting bigger for you. This development is particularly drastic when interest rates have risen in the meantime and a credit broker has also been involved.
But regardless of this, “debt restructuring” means a major financial loss. The processing fees are not reimbursed pro rata, so the borrower pays twice. The residual debt insurance of the pre-loan is terminated and only leads to reimbursement of the surrender value. The new insurance contract will be more expensive due to the higher entry age. The disadvantages of a debt rescheduling can lead to a claim for compensation if you have not been expressly pointed out. In these cases too, consumer advice centers are happy to help.
If you can no longer pay the agreed installments for an installment loan, you should definitely speak to the bank. Perhaps she is willing to defer the installments and waive the deferral interest and fees. If you can no longer raise the installment amount, you should negotiate with the bank to reduce the installment amount. This leads to an extension of the term and the loan becomes more expensive overall, but you can fulfill the loan agreement.
Beware of so-called credit brokerage companies
More and more loan offers catch the eye of citizens from advertising pillars and posters. Many banks undercut each other here, although it is only a low interest rate. In the case of car financing, offers are offered with “zero percent interest”. In many cases this is just the so-called nominal interest. Because fees and additional costs of the loan are not included. If you want to compare loan offers with one another, you should therefore always rely on the “effective annual interest rate”, because this includes all ancillary costs and fees that are due in connection with a loan. Credit institutions were even required by law to only provide this value.
Another point to consider when comparing loans is the so-called loan term. Because the longer the term of a loan, the higher the interest burden that has to be paid in total. The monthly contribution is correspondingly low. On the other hand, if you choose a shorter term, you have to pay a little more per month, but the total interest burden to be paid is significantly lower. It should also be ensured that the selected loan term is also adapted to the life of the property. If this is chosen too long, for example, the vehicle will already end up in the junkyard, even though the loan has not yet been paid off.
As a rescuer in need, some credit brokerage firms are currently presenting themselves to citizens who are in financial difficulties – and are cashing in. The trick: With advertisements in the rainbow press, companies are encouraging consumers who would hardly get a loan from banks and savings banks to report. The representatives of these companies then have the customer sign not only a loan brokerage agreement, but also an “agreement on reimbursement of expenses”. In this way, the customer is asked to pay in any case, regardless of whether he gets a loan or not.
However, the reimbursement of expenses usually includes items for travel expenses, the workload of the field staff, forms and postage, as well as telephone costs and information. The bottom line is that a maximum flat rate of sometimes more than 200 USD is required. Payable immediately, regardless of the success of the placement. The consumer organizations also see the blanket “agreement on reimbursement of expenses” as a trick of the credit intermediaries that this is mainly about collecting flat rates and not about real credit brokerage.
Furthermore, it is assumed that these placement companies also accept unrealistic loan requests in order to then collect additional fees and processing fees. The consumer protection organizations also see this as a violation of the Consumer Credit Act. A flat rate for such facilities is inadmissible, travel expenses and visits by representatives cannot be billed at all. Consumers should under no circumstances sign the relevant loan brokerage agreements.
Beware of foreign loans
The procurement of debt via banks and savings banks remains critical for many smaller companies. However, sufficient credit lines are required to avoid or avert liquidity bottlenecks. In this situation, cheap loan offers – even if they come from abroad – appear very tempting. However, caution is often neglected. Already the chambers of notaries warn of dubious loan offers from intermediaries who are based abroad. Medium-sized companies that are lured by placement companies such as FMG Foreign Trade Company and Thunderspray Import Export Co. LTD in Gibraltar and Ljubljana are particularly affected.
The offers, which mainly concern commercial financing, are difficult to understand. In many cases, the absence of any economic plausibility cannot even be determined. The reason for this is obvious: you bait with an excellent interest rate of between 3 and 3.2 percent with a term of between ten and twelve years. The payment of the loan amount is also interesting because in most cases it is between 98 and 100 percent. In this way, the loans are made palatable to the entrepreneur, and with success. Because with the advertised conditions, the donors are even better than the public subsidies.
Furthermore, the lender makes the provision of financial resources dependent on collateral. This also normally corresponds to the principles of banks, which generally require 100 percent security for the loan. However, these financing offers require a loan of up to 130 percent. In this way, the loan is completely oversecured. If one compares this oversecurity with the favorable interest rate, there are serious doubts about the economic feasibility.
In order to pretend that the borrower is serious, the entire payment of the loan is processed via a notary’s account. The loan payment is subject to the condition that an owner’s land charge is ordered and assigned to the lender. What many have no idea: Even a mortgage on a foreign creditor means a significantly increased risk. If there are any disruptions in the repayment of the loan, the borrower is bound to enforce possible claims abroad.
The next hurdle arises when all the formalities have been completed with the notary. A check is paid to the lender to meet the requirements of the loan. Such a settlement also does not correspond to the circumstances of reputable lenders. Because here too it is shown time and again that the checks issued by the German banks are not at all cashed. In some cases, the check forms were even stolen. In this way, the borrower not only has problems with the fulfillment, because of the not inconsiderable loan amounts, there are also large amounts of return debits.
However, the borrower also exposes himself to considerable risks if a payment should be made by bank transfer. Because there is no way for the borrower to check whether the lender runs a business in his home country that is also approved. Rather, the whole business is done under time pressure because of its “uniqueness”. If you are not sure whether the borrower has the required permission under Section 32 of the German Banking Act, you should contact the Federal Financial Services Authority (BAFin) in advance. In most cases, this inquiry already shows that the business offered not only lacks the necessary legal basis, but also that the alleged lenders are fraudulent.
In this case, it is no longer a question of providing the loan funds, but rather of the advance payment, which the dubious companies immediately collect. In any case, these funds, which arise from taking out credit and residual debt insurance (so-called early commissions), are broken. Entrepreneurs should therefore not accept such tempting offers, because the inclusion of cheap loan funds also requires thorough research or the necessary commercial diligence.
Beware of unauthorized banking
The granting of loans and loans is part of a bank’s core business. The forms of lending are very different: They range from overdraft facilities with checking accounts to consumer loans for larger purchases and construction finance. The requirements for lending depend on the type of loan as well as on the person of the borrower. The payment for the provision of the funds is also complex. This can range from an increased interest rate (overdraft facility) to commissions (overdrafts) to previous deposits at low interest rates (home loan). Loans are also used fraudulently, in the form of deposit loans or as interest-free and repayment-free loans. The borrower first pays a certain percentage of the desired loan amount as equity to the provider.
The amount paid in advance is intended to generate the repayment of loans and interest through particularly favorable forms of investment, so that allegedly no repayments are incurred if the loan is paid later. The forms of investment are not mentioned, nor are the banks that are supposed to grant the loan. The intermediary finally disappears with the deposit. A special variant of this is credit brokerage, in which a reimbursement of expenses for expenses for estimates, the collection of information, travel expenses, etc. is required in advance. However, credit is mostly not allocated due to excuses, eg due to poor creditworthiness or incorrect self-disclosure.
From the outset, the aim of the intermediaries is to collect the expenses alone. Loans are often offered in newspapers with the help of classified ads. Interested parties need to listen carefully if returns are to be achieved within a short period of time, which make up 70 – 90% of the loan amount. However, the investor must be aware that there is a natural difference between debt and credit interest. If, in addition, the facilities for the advance payments are not disclosed, this is a clear indication of a likely fraudulent provider.
A commonly used variant is to couple a loan with an investment business. The difference in value between the market value of the property and the charges entered in the land register are used as a basis. The amount of the difference in value results in the loan amount, half of which is stated as a loan and half as an investment amount. This should not only keep the loan free of interest and repayments, it should also generate the highest returns for investors. The horse’s foot lies in the high commission. However, the loan is never paid out.
Therefore, beware of confidentiality obligations, often combined with high contractual penalties. Anyone who needs this has something to hide. Never trust any offers that are difficult to understand, just because lawyers, tax advisors or notaries take an apparent guarantee. These often only have the function of passing on the funds and do not have an overview of the matter, if they do not belong to the accomplices anyway. Get references and check them critically, if necessary with the assistance of experienced lawyers or tax advisors. Investing some money for this makes more sense than trying to limit its damage later with a large investment.
Complain about incorrect bookings or dubious debits immediately. Customers can object to debits from their checking accounts even if they were significantly longer than four weeks ago. A lack of reaction to the account statement is not to be regarded as approval (BGH, Az. XI ZR 258/99). The BGH thus contradicted banking practice. These made it clear on the back of the account statements: If you do not contradict the quarterly accounts and therefore all direct debits that have been debited up to that point, approve them.
Beware of so-called decoy offers
“Mortgage loans are cheaper than ever before!” – The full-bodied promises of many providers are one way or another. In the age of the modern banking industry, not only has things become easier, the current interest rate constellation is at a record-breaking low. Nevertheless: A combination of low interest rates and a low repayment does not only have advantages for building owners. Today’s rates are kept extremely low by the banks, but the loan term is also extended considerably! For this reason, these “special offers” must be warned of so-called decoy offers, as many banks are currently trying to sell construction loans in connection with a life insurance policy to customers who are willing to build. Others, in turn, offer a “special loan program” that is designed to give the customer an interest rate reduction of 0.3 percentage points. What they all have in common is the conclusion of a capital or unit-linked life insurance. The highlight: With the payment from this insurance, the loan should then be repaid at the end of its term.
Since these are so-called combination loans, these programs are only suitable for tax purposes for investors, i.e. people who want to rent their property. These combination loans, on the other hand, are completely unsuitable for home finance. The reason: The low interest rates are all just faked, they do not take into account the contributions for the insurance in any way. This makes these offers significantly more expensive than conventional financing offers. For a bank, the loan specified in the prospectus does not actually cost 3.65 percent, but rather 4.36 percent – with the premiums for life insurance! There is also another problem with the future return on life insurance because it is in any case completely uncertain whether the payment from the insurance will be sufficient to repay the loan. In most cases – as evidenced by past cases – there are credit gaps of more than 30 percent. This is simply due to the low profit sharing, because most insurers have drastically reduced it in recent years.
The investor trap “mortgage loans with variable interest rates” is equally dubious. Many real estate investors take out variable rate mortgage loans. Compared to fixed-rate loans, this always makes sense if the money price that the bank pays for its own loan has probably reached its top and begins to decline. In such cases, the lending banks are obliged to also reduce the conditions for variable loans. However, there are always disputes between investors and financial institutions about the modalities for interest rate adjustments. But as soon as interest rates go up, the institutes do not shake for long and also raise the loan price. However, if interest rates on the money markets fall, banks and savings banks take a long time to adjust. The legal problem in this context is that the loan contracts are often rather vague and therefore no exact adjustment clauses can be derived from them.
Sometimes there are phrases in the loan agreements such as: “Interest rates will be adjusted after development on the money and capital markets. The bank notifies the customer of the change in interest rates in good time. ”But there are now a whole range of different court rulings that keep money houses on the shorter leash when it comes to interest rate adjustments. After that, it is not at all at the discretion of the institutes when they will cut the interest rates. The Dortmund Regional Court ruled (file number: 8 O 559/99) that indistinct contractual clauses violate the General Terms and Conditions Act. Therefore, they are not permitted. Consequence: When and to what extent mortgage loans with variable interest rates can be reduced or made more expensive must be clear from the respective loan contract! A correct financing proposal therefore basically contains all costs and conditions. The following points should be clarified in advance:
- Up to what amount (in USD and as a percentage of the loan value) does the stated interest apply?
- Does this amount co-finance a possible discount or does the payout loss have to be financed separately?
- How much does the subordinated loan, which lies above the lending area of the 1st mortgage, cost more?
- Are there any processing fees or other costs? Is an appraisal required?
- From what date are interest payments made and how much?
- When are the installments due and when are the redemption payments made?
- Are surcharges charged for partial payments?
- Has the processing fee been calculated based on the fixed interest period and thus taken into account in the necessary effective interest? Or was the processing fee calculated over the entire term of the financing? In the latter case, the effective interest rate works better, although the entire fee is due immediately.
- Is the tax savings listed as a relief? What is the financial situation when the benefits expire?
- With which interest rate is the calculation continued after the fixed interest rate? Under no circumstances should today’s interest rate be taken into account. The effective average interest rate is realistic.
- Has the creation of personal reserves for purchases and future security been taken into account? Has it been considered that the children will get bigger and more expensive?
Beware of rip-offs: they lure with loans and sell insurance
Every year dubious credit brokers turn over at least 150 million USD. Ascending trend. The dubious thing: credit intermediaries in Germany so far only need a business license and no other proof of qualification. This is an open gate for fraudsters and rip-offs of all kinds. However, most credit brokers are not at all interested in a real loan brokerage, they rather want to urge consumers to take out additional products such as insurance, investment funds or silent participation in society. The credit intermediaries themselves are also required to recommend their customers in several letters to conclude additional contracts in addition to a loan agreement (e.g. liability, household contents and accident insurance). However, the courts see this practice as a violation of competition law and prohibit companies from sending such letters. The Stuttgart Regional Court, for example, which prohibited a credit broker from recommending additional products to its customers (Az .: 37 O 30/08).
The procedure for dubious credit intermediaries is always the same: interested parties ask a financial service for information material on a loan without Credit Bureau. Instead of the information material, a placement order with a credit contract immediately follows, followed by a transfer form for $ 105 as an alleged processing fee. Reason: These expenses would arise for the company and would also have to be paid in advance (ie before the actual loan brokerage). The worthless letters are almost always drawn up uniformly:
Anyone who signs the brokerage contract will shortly after receive a postal order with a cash on delivery amount of 127 USD. In no sentence does the company mention that brokerage fees are due in advance. But it is even more curious: Even if no loan is applied for, the companies then charge a fee again – this time for expenses incurred. At the same time, companies are commissioned to collect this money from the alleged “customer”. The law is clearly on the part of the citizens: According to German law, a credit broker is not allowed to collect “expenses” at all if no credit is obtained. Credit intermediaries usually receive a commission from the lending bank, so that the customer does not have to pay anything (directly).
If any costs are raised in advance, it is usually a so-called advance fraud – the customer pays for a worthless stack of paper and never receives a loan. But even “semi-reputable” brokers often try to collect fees if the customer does not want to accept the offer. The legal basis is in § 655 d BGB. According to this, a loan broker for services that are connected with the brokering of a consumer loan contract or evidence of the opportunity to conclude a consumer loan contract, apart from the remuneration pursuant to section 655 c sentence 1, may not agree a fee. However, it can be agreed that necessary expenses incurred by the loan broker are to be reimbursed. What this means is that such an agreement to cover expenses can be made with the customer, but only in the event that these expenses are necessary and have actually arisen. Compensation for an online placement of up to 250 USD is therefore out of place.