A new car, the wedding of your dreams or a renovation – there are plenty of situations where you need more money than you have in your account. A loan can provide a solution. But what does the loan market look like? And how do you avoid risks? Six points of attention when taking out a loan.
1. Look before you start
Taking out a gt loan is a big financial step that you should take carefully. After all, you borrow a large sum of money that must be repaid later with interest. That is why it is important to know in advance what you are going to do. Borrowing money can help or hurt you depending on how you approach it. For example, a high interest can cost you unnecessarily much and years of paying off can be disappointing in practice. In addition, taking out a loan ensures BKR registration. As a result, it is possible that you will receive no or a lower mortgage.
The option ‘buy now, pay later’ can be tempting in the short term, but you can really pay off the repayment. If you do not pay on time, the monthly interest on the outstanding amount can rise to 15 percent. And that car that is ready to shine? That nice dealer will be happy to help you finance the purchase. But even then you often pay a high interest. A bank loan is usually cheaper.
2. Continuously or personally
Loans come in all shapes and sizes. The best known are the personal loan and the revolving credit. With a personal loan you borrow a one-off amount that you repay within an agreed period. The interest is fixed during the term and you pay the same repayment amount every month. This way you know exactly what it costs and you will not be faced with surprises.
Personal loans have a minimum term of 6 months and a maximum term of 120 months. With a longer term, the monthly costs and interest are lower, but you end up being more expensive because you pay interest costs over a longer period.
A revolving credit works slightly differently, because it has no term to maturity. With a revolving credit you can withdraw unlimited money up to the agreed limit. You only pay interest on the amount that you actually withdraw. Unlike the personal loan, repaid amounts can then be withdrawn again, as long as the limit is not exceeded.
With a revolving credit, the interest is variable: it can rise or fall in the interim. As a result, the monthly repayment amount can vary. It is therefore difficult to estimate in advance what the loan will cost. A revolving credit is especially useful for things where the total costs can be higher, such as a renovation. You can then easily borrow.
3. Compare providers and interest
Interest rates vary by lender. It is therefore smart to compare interest rates well in advance. Rabobank subsidiary Freo pays an interest of 3.9 percent for a loan of 25,000 euros with a term of 5 years. According to comparison site Independer, that amounts to 2509 euros in interest costs. Competitor Santander charges an interest of 8.5 percent. In 5 years’ time, that is 3038 euros more than with Freo.
Comparing providers and rates does not say everything. For about half of all personal loans and revolving loans, the actual interest rate only becomes clear after a quote has been requested, according to a recent study by product comparison company MoneyView. The amount of the interest is determined on the basis of a personal risk profile.
This involves looking at age, income, living situation, marital status and BKR registrations. If there is a greater risk, for example because you rent or are self-employed, you usually pay a higher interest rate.
It is therefore wise to request more quotes. This is usually free and without obligation. You can still decide whether or not you want to take out a loan. After signing your contract, you have a 14-day cooling-off period.
4. Remission on death
If you take out a loan and die unexpectedly, your surviving relatives will be saddled with the residual debt. You can cover that risk by taking out term life insurance. With ABN Amro, BNP Paribas, ING and Rabobank, this risk insurance is included in a loan.
You do pay a higher interest rate than with lenders who work without risk insurance, such as Freo. With ABN Amro and ING the maximum remission is 75,000 euros, with Rabobank this is 50,000 euros and with BNP Paribas 25,000 euros.
It may pay to choose a low interest rate loan and take out term life insurance separately. For example, a loan of EUR 25,000 with ABN Amro (4.7 percent) over five years is EUR 228.40 more expensive than the same loan with Freo (3.9 percent) with a separate Hera Life life insurance policy.
5. Think of paying off earlier
Paying off faster or repaying everything at once saves a lot of money. It is therefore smart to investigate whether this is allowed free of charge before taking out a personal loan. With some lenders you pay a fine if you pay off more than the agreed monthly amount, because the borrower wants to be compensated for the missed interest income.
If we compare the terms and conditions of lenders on financial comparison site geld.nl, we see that most do not charge penalty interest when paying off a personal loan early. An exception is Santander Consumer Finance, the Dutch branch of the Spanish major bank Banco Santander. The fine there amounts to a maximum of 1 percent of the amount repaid. You can always repay a revolving credit without penalty.
6. Flash credit: don’t do it
A flash loan is a mini loan with a short term of 15 to 62 days, which you take out online or by text message. The money is deposited into your account quickly, often within 24 hours. That sounds attractive if you are short on cash, but there is a hefty price tag. The interest rates for flash credits are no less than around 14 percent, the legal maximum.
Providers often also charge other costs, such as processing the request. Because flash credits are excessively expensive, it is smarter to take out a personal loan or revolving credit.