According to a survey carried out by the Society for Consumer Research (GfK) on behalf of the banking association in 2018, most Germans plan for expensive purchases with loan financing: Almost every third German (32 percent) is currently using at least one financing. Installment loans are the most popular form of financing. The most important reason for a loan is a mobile base. Of those surveyed, 31 percent stated that they had taken out financing for a new car, and 28 percent said that the reason for financing was the purchase of a used car. Thereafter, installment loans for furniture and kitchen furnishings ranked third with 17 percent.
Five steps on the way to the right installment loan
Finance with reason
When it comes to realizing the purchases, a clear picture emerges: what is necessary or can be planned is paid for in cash, the unforeseen with a loan. The respondents save long-term for their own wishes, such as vacation. Surrendered expenses that are unforeseen are more likely to be paid with a loan. After all, the broken car usually has to be replaced quickly so that you can get back to work.
Speaking of the car: the most common use of an installment loan is actually the purchase of a mobile base. True to the motto “finance with reason”, we have put together five steps that will help you find the right loan and improve your chances of getting it.
Short or long term: Available- vs. installment loan
Depending on whether your purchase just overextends your budget or whether this will be the case in the long term, it is worth considering which form of credit is the right one: overdraft or installment loan. An overdraft facility, ie an overdraft facility for a checking account, is often twice as expensive as an installment facility. Therefore, it is advisable in any case to check whether the account is now overdrawn for a longer period and it therefore makes sense to apply for an installment loan. Useful tip: If you use your overdraft facility on a regular basis anyway, rescheduling on a cheaper installment loan offers a lot of savings potential.
The tip of the balance: the condition comparison for the installment loan
If you have decided on an installment loan, it is always worth comparing the conditions of different institutes before applying. Some providers lure with an “asterisk offer”. This only applies to a restricted group of people with very good creditworthiness, a certain loan amount and term and is therefore probably a few percentage points from your current interest rate. In general, the interest quantifies the price of your loan. Always compare the effective annual interest rate: it includes all costs for the loan and is therefore the ideal basis for a quick comparison. Also pay attention to an identical term and loan amount when comparing different offers: This is the only way the comparison is meaningful.
Creditworthiness matters: the Will Credit and Company Score
Most loans are credit-dependent: This means that the credit institution uses your personal data to determine the probability that you will repay the requested loan. As a rule, the bank receives the information for this via Will Credit and Company (abbreviation for “Protection Association for General Credit Protection”). This credit agency collects the credit-relevant data of the Germans in order to make them available to banks and commercial companies. The higher your likelihood of repaying the loan and the lower the default risk for the bank, the higher your Will Credit and Company score and the better your credit rating. Important: The higher your credit rating is, the lower the interest rate that is usually offered to you. It makes sense to regularly check and, if necessary, correct the data that Will Credit and Company holds about you. You can arrange both on the Will Credit and Company website.
Pay attention to the correct wording: Use “Inquiry loan terms”
Every credit request is forwarded to Will Credit and Company. Too many inquiries have a negative impact on your score and thus on your credit rating. The reason: Will Credit and Company then assumes that you make so many credit inquiries because you are always rejected. It is therefore important to explicitly advise the clerk to make a so-called “request loan terms”. Because this type of query is deleted after ten days and therefore does not affect your Will Credit and Company value.
Everything at a glance: Plan your financing request realistically
Whether you or your customers want to buy a new car, finance a modern kitchen or plan a debt rescheduling – your loan amount and the monthly installment should be tailored to your life situation. Clean up and compare all your income and expenses. This is the only way to get a real picture. For example, when rescheduling a debt, it is important not only to replace the old loans, but also to take account of credit card debts and overdrafts. It is also important that you can pay the monthly installment over the entire term.
Our tip: stay flexible – but secure
It is better to set the monthly rate a little lower and make special repayments if possible. In this way, you remain flexible and do not get into a financial bottleneck when there are unexpected special expenses. You should plan the installment loan precisely. Good interest rate conditions are crucial for installment loans, but not everything. The loan must suit you and your individual financial situation. It is important not to overdo it, to plan realistically and to remain flexible.