Unnecessary loans go unnecessarily into the money
You will already take out a loan if you agree on a installment payment for online shopping or the electronics market. Although the monthly charge for the new TV is relatively low, you usually have to live with additional interest. If you calculate the monthly installment amounts over the entire term, the bargain will be expensive. You can save such interest costs by paying your purchase directly and avoiding the financing. It is always important to remember that every month you have to pay your installment. This is of course less risky for a device for a few hundred euros than, for example, a much more expensive new car financing. There can incur additional costs through follow-up financing, which will burden you unnecessarily. In general, besides the extra fees for a loan, you should always keep an eye on the direct consequences and the residual risk.
Each credit burden your credit rating
The term credit rating is understood in the financial industry creditworthiness. This is a key consideration when you are looking for a loan (even for a loan without credit bureau). If your credit rating is too low for the potential lender, you will not even manage the first hurdle. Then your loan request fails already when applying. When making a loan application, you must provide information about yourself and your income situation. In addition, it is obligatory for the lender to verify your creditworthiness. For this a credit bureau-information is required. The “Collective Protection Group” collects all the data related to your financial behavior. Overall, this agency has the records of more than 67 million consumers and over five million businesses. According to its own parameters, credit bureau evaluates all sorts of information that individually relates to the reliability and probability of default in financial transactions.
For example, if you have ongoing dunning procedures, trouble with a collection agency, or something similar, the credit bureau will find out about it, but everything else about your business will also be recorded there. How many mobile phone contracts or credit cards run in your name, is there a bank loan, are there loan requests or do you regularly slip into the account of your account? Such data is collected and evaluated by the credit bureau, which is used to calculate a score that reflects your credibility in financial matters. The information gets the credit bureau of your business partners, so from your bank to the gym, where you have a contract. By the same token, your contract or credit partners will always be informed in advance about your credit rating. Even before you rent a movie on Netflix, the streaming service asks your credit rating at the credit bureau. This does not exclusively reflect your behavior in the financial area. Even your age, gender or home address will be included in your rating and ultimately affect your score. Due to the lack of transparency in this procedure, the credit bureau is repeatedly criticized by data and consumer advocates.
Keep an eye on your credit bureau entries Not only in financial transactions is your credit bureau queried. Landlords, for example, are also increasingly asking how creditworthiness is being sought by apartment seekers. You have the opportunity to inquire about your own values. Find out how to get a copy of your credit bureau data easily and free of charge here. If entries and notes are outdated or erroneous, you can arrange for a correction. In this way, you may be able to improve your credit rating.
When a loan is really appropriate
A car or a property can certainly pay the least from the household. For larger investments, loans are indeed essential. With it, dreams as well as urgent acquisitions can be realized. However, some things have to be clear to you in advance. For one, this is the intended use. Does this really make sense and does such an issue really add value to you? Loans that you use for a vacation trip or risky stock market speculations, for example, are less reasonable than those that allow you to have a home for your retirement or to protect your children. On the other hand, it must be guaranteed that you do not pay for the repayment costs. Your free disposable income must be sufficient for you to meet the monthly repayment installments. Think of such mind games to an end. Think about what plans you have for the future. Does a loan fit with its commitments to your lifestyle, family planning or other dreams? Only after all aspects of this kind have been properly thought out, you should seriously look for a loan.
The simplest loan is among the most expensive
The most comfortable way to get a loan, everyone knows from everyday life. With no application form or bureaucracy and easy to get them via your EC or credit card. With the so-called credit line, you overdraw your bank account up to an agreed limit. Depending on income, creditworthiness and bank, a disposition is usually granted up to a four- or five-digit amount. What’s easy is a really lucrative business for your bank. On average, you have about 10% or sometimes more interest. If you overstate your account regularly into the red, you should consider alternatives. One of these could be a single installment loan. Although this costs interest, but only about half of a credit line. So you save interest and can use up the loan amount piece by piece, instead of permanently using the Dispo. If it is not exceptional, you should do without your Dispo as much as possible.
The same applies to the credit card limit. You can also live up to your circumstances by exploiting it. In addition to avoiding the use of a installment loan, there is another way to avoid such costly loans. Agree with your bank that it will lower or cancel your check-in and credit card limits. You can arrange that in the future you will not be able to dispose of money that is not available to you as credit. This eliminates the lure of fast lending at the machine and does not risk losing money on your accounts. In addition, this measure helps to ensure that your score does not worsen at the credit bureau. Loans in the form of credit and debit card credit are often underestimated, but in the long run in the money and at worst can become a debt trap.
Why you should protect your credit rating
Making sure your credit rating is spared can bring you some benefits. If you plan to make a major purchase in the long term, such as buying a property or a car, you can expect more favorable interest rates. A good credit rating not only increases your chances of success, but also brings you advantages in the terms. Banks and other lenders rate it positively if you have not been so often noted as an applicant at the credit bureau. This conveys a serious image of you as a reliable debtor. Buy little or nothing on credit, they will automatically make you more believable. You can lend money because you obviously have a good handle on your finances. This aspect basically indicates that you should first think about a loan. Not all consumers currently know what information is exchanged and registered before and during lending. As a rule, sleep for one night before final signing of a loan application.
Each bank grants loans for a single reason: it wants to make money from it. An excellent credit bureau score often brings you favorable conditions, but you will not get your credit for nothing. In addition to interest, one-off fees may apply to the contract, provision or other administrative expenses. Even if interest rates remain at historic lows, you always have to repay more money than you lend. You must be aware that the only interest rate for credit offers is the effective interest rate. Only this information tells you what you have to pay for the loan with all its additional charges. Due to the particularly favorable interest rate lending with negative interest rates came on the market for the first time lately for the first time. In the end, you actually have to pay off less than the actual loan amount, but your requirements are very limited. Every consumer only gets such loans once and the amount is usually between 1,000 and 10,000 euros. In addition, an above-average credit rating is required, which (as with any other loan) is adversely affected. Low interest loans are nothing more than marketing jokes intended to generate publicity.
When absolute caution is required
The trend is currently the so-called micro or short-term loans. These financing offers, also known as mini-loans, provide an attractive opportunity to plug short-term funding holes. Mostly they are offered only at low altitude and over very short terms. Should you need for a month or two, microcredits are only partially suitable. Although the interest costs are usually hardly more expensive than a normal installment loan. However, you have to pay for each extra relatively large amount of money. If you are late in repayments, such loans are really expensive. In the case of a short-term loan, under all circumstances, make sure that you can balance it with your next or the next salary payment. The extension of your term beats extra. You will also be asked to pay if you need an express payment due to time constraints. Last but not least, such a loan has an unfavorable effect on your credit bureau score. The credit bureau rates it negatively if you need a loan for a relatively small amount of money. You can look up a detailed article about mini loans and their risks here.
When a loan helps you to reschedule
Take out a loan to save money this way? This is mainly due to the favorable interest rates that are currently on the market. Banks use their money to make it work. The lent capital should increase over the accruing interest and not lie around uselessly in the basement of a financial institution. So lenders are undercutting lower interest rates to make their offers attractive. Besides a low interest burden, there are other options for a current loan. For example, you can expect a certain amount of flexibility in terms of participation. For example, the possibilities of special repayment or flexible installment pauses can be incorporated. Were such extras in the past not offered or at best for an additional cost, they are today at many providers to get free. You can use a loan with the current low interest rates to replace other loans and save costs. Whether a loan in your case offers for rescheduling depends on your current credit situation. In addition, some computing work is required.