What is a loan?
A basic distinction is made between money loans and property loans. However, the term loan usually means a long-term loan.
A contractual contract is concluded as part of this loan. In the case of a money loan, the lender (creditor) undertakes to make a certain amount available to the borrower (debtor).
This amount is to be repaid in the same quality and usually with interest at the due date.
Use a loan for your dream home
Banks, credit institutions and building societies provide loans. If you want to take out a loan to finance your own four walls, there are various options.
For example, there is a home loan that is part of a home loan contract. In order to receive the home loan, you first have to save equity in a savings phase. You can then take out a home loan at a previously agreed interest rate. A loan calculator is used for the preliminary calculation.
- Since a loan is long-term and is concluded with higher sums, it is mostly used to finance larger projects – one of the best known is, for example, the construction loan that is used to build or buy a property.
Lenders will always check exactly who he is lending money to. Anyone who applies for a loan must therefore expect strict checks of their own financial position.
It plays a role here how high and how secure the monthly income is, what income you can earn in addition to the income, whether you have already saved equity that you can bring in, but also the property to be financed with a construction loan is closely examined, because this usually serves as security for the lender.
Here it is important to give the potential lender an insight into all the necessary documents such as:
- Pay slips
- Bank statements
- Proof of the property to be financed
to grant and answer honestly to all questions. Otherwise you take a risk at your own expense. For example, if you give monthly income that is too high, in the worst case you will be confronted with a mountain of debt that you will never be able to pay off.
In order to negotiate the best possible terms in your own financial framework, the greatest possible transparency and a certain level of negotiation are required.
In order to be able to negotiate the best possible terms in discussion with the bank, good preparation is essential. With the additional help of this checklist and our SSL certificate-protected loan calculator, you can calculate your budget exactly and go well prepared to the consultation with the bank.
Loans and Credit – Differences and Similarities
The terms “credit” and “loan” are all too often used interchangeably. Strictly speaking, however, this is not entirely true. Strictly speaking, credit is the generic term and a loan is a sub-form of credit.
A loan is generally used to refer to the procurement of debt capital or a money bond. A loan is a loan of a higher amount, with a term of more than four years. A loan is legally regulated by Sections 488 ff BGB and is very often used for real estate financing.
Case study for a loan
Consumers who take out a construction loan of USD 100,000 with a 5 percent discount receive only USD 95,000 from the lender. The payout rate is therefore only 95 percent and not a full 100 percent. However, the full loan amount must be paid back by the borrower.
A business partner grants a non-interest-bearing loan of USD 100,000 for a project, which only has to be repaid in 5 years. During this project, the lender has only one condition: the construction equipment must be borrowed at fixed terms during this time. You cannot go to a cheaper rental.
- If these liabilities are not recorded, the tax office can discount, due to the long term, that is, a profit increase of 19,300 USDos. However, if it is evident in the records that renting the construction equipment results in an economic disadvantage, this is equivalent to interest. Then a liability of USD 100,000 can be shown and not just USD 80,700.
The most important question is of course how much you want to borrow. You should calculate generously here, because both when building a house and when buying property, unexpected costs can always arise.
In the next step, the amount of interest is essential for the further loan calculation. Because the cost of interest has a significant impact on the total cost of the loan.
The repayment specifies the monthly rate at which the loan and the interest accrued are paid off. On the one hand, the rates in the loan calculator should not be set too low, because the higher the repayment, the faster you are free of debt and the less interest you have to pay to the bank.
At the same time, you also have to be careful not to overdo the rates. Otherwise, you will quickly only live for the next 20 years for the property, because you can no longer afford holidays or special purchases.
Before taking out a building loan, you should also consider whether you will be able to make special repayments. Usually, you can pay off five to ten percent of the loan amount through special repayments at no additional cost.
The actual loan calculation is about finding the right real estate financing.
A corresponding loan calculator can help with this: It determines the basic conditions of the financing from the available data. In addition to the borrowing rate, the bank’s fees must be taken into account here. Various fees make the loan more expensive.
- Lenders must specify fees and debit interest as the annual percentage rate via the price regulation. However, this does not yet cover all fees.
Advantages and disadvantages of the loan calculator
A very good loan calculator can already provide an initial orientation – advice from a bank, bank or building society cannot replace a loan calculator. Because you can’t negotiate with a loan calculator, you can negotiate with a bank advisor. The bank also records other important criteria for the calculation of a loan.
What has an impact on mortgage lending / loan calculation?
Influence on construction finance mainly parameters such as:
- the borrowing period
- the initial repayment or
- the loan amount.
As a result of these framework conditions, the amount of interest charged on the building loan can change significantly.
The question of special repayments is therefore an important aspect for the loan calculation. Background: As a rule, banks allow borrowers to deposit between five and ten percent of the loan amount into the credit account – apart from the agreed repayment schedule. These special payments have a significant impact on the invoice and can significantly change the result.
- It is quite tempting to calculate the loan with special repayments. Ultimately, however, only a realistic assessment or a realistic loan calculation leads to the goal.
The financing models differ immensely from one another.
- Every loan for the construction or purchase of a property must be repaid – either in flexible installments or in fixed installments.
Building savings is part of the classic form of loan and is very popular with future builders. But there are other forms of a loan.
Some examples of loan types are:
This special form is not only rewarded with interest. In most cases, a participatory loan is not even paid at all by interest, but by profit sharing. Lenders can therefore achieve the following profits through a participatory loan:
- possibly interest
- a share of the business profit
- a profit sharing with a minimum profit that is guaranteed.
A subordinated loan is a loan whose claims are placed behind the liabilities of other creditors. When a subordinated loan is repaid, the loans with a higher rank are only paid. However, a subordinated loan is a regular loan. In any case, this must be repaid.
- The default risk is greatest for lenders of a subordinated loan. Therefore, high interest rates must be expected.
In the case of a final loan, the interest is only paid by the end of the term – only then is the actual amount paid in full. A final loan poses high risks for the lender. Banks can hedge these risks with investments. Interest is almost always very high on a maturing loan.
For this, only the actual loan amount has to be repaid by the borrower. The interest is dropped. Interest-free loans are often granted by friends, acquaintances, relatives or by the employer.
- Beware of interest-free loans that run for more than a year! Officially, gift taxes apply.
Online loan comparison: pros and cons
Loan comparison on the Internet offers not only practical advantages, but also some disadvantages:
|Advantages of online comparison||Disadvantages of online comparison|
|can be done comfortably at home||no on-site service|
|good orientation aid for future builders||no personal advice|
|numerous loans and loan providers||no personal contact|
|often cheaper interest on credit||often additional insurance sales|
|hardly any administrative costs||The small print must be read carefully|
- There is another decisive disadvantage of online loan comparisons: The interest rate on a construction loan is fundamentally determined by the individual creditworthiness. This credit rating says a lot about the likelihood that the loan will be repaid in full. The higher the credit rating, the cheaper the interest on the loan. However, the comparison calculator on the web cannot determine your own credit rating. That is why these comparison calculators or loan calculators always start from the offer interest.
Credit comparison via credit intermediaries or branch banks: pros and cons
Future builders can also compare the loans at the large credit intermediaries and branch banks. These comparisons with credit intermediaries have both advantages and disadvantages.
What are the advantages?
One of the biggest advantages of a loan comparison through a credit broker is individual advice before submitting an application. The credit broker also knows lesser known banks and credit institutions and supports future builders in compiling the application documents. With a large loan amount and difficult personal circumstances, credit intermediaries offer argumentation aids and thus better chances of good conditions. If the creditworthiness is difficult to present, loans can still be arranged by the credit intermediary.
What are the disadvantages?
But there are also decisive disadvantages of a credit comparison via a credit broker. These include, for example, the possibly higher costs for loan brokerage. In addition, the future builders can hardly recognize dubious offers. This creates the risk of overpricing loans. Sometimes it even happens that the credit approval is dependent on the conclusion of other insurance or residual debt insurance.
- Future builders who want to make a loan comparison before the loan is concluded can use the comparison calculator or loan calculator on the Internet to get a good overview. Builders who do not want to do without personal advice and whose creditworthiness is very difficult should contact a credit broker.
Mortgage loans for this are the end of the fixed rate period. At this point it is relatively easy to change lenders. In principle, even after ten years of fixed interest rates – even if the agreed fixed interest period has not yet expired – a loan can be canceled and the bank changed. Here, however, you have to observe a notice period.
- Repaying a loan not only ensures more favorable conditions, it also costs money! For example, if a loan is canceled after ten years and the interest rate is fixed beyond the ten years, the bank incurs prepayment penalties. There are also processing fees. The savings from a new, cheaper loan often only pay off in the long term.
What documents do you need?
When changing the borrower (= debt rescheduling), some formalities have to be completed.
The following documents should be available:
- Proof of salary or other evidence of the income situation
- Documents related to the property
- Extract from the land register
- the old loan agreement.
Mortgage loans to finance your own home, which are often paid off over decades, can only be terminated under certain conditions. One should pay attention to what the corresponding clauses look like when negotiating the contract with the bank.
Such a loan can usually only be terminated after ten years without incurring any compensation costs. The notice period is usually six months.
- The right to cancel a mortgage loan after ten years also exists if the fixed interest period has been set for a longer period – for example, ten or 15 years.
Termination by the bank
The bank may also consider canceling the loan for certain reasons.
These reasons include, for example:
- the borrower is in default of payment and still cannot pay after setting a reasonable deadline
- a loan was granted stating the wrong facts
- the borrower does not regularly meet his obligation to inform the bank.