In principle, the term for loans between the customer and the bank is freely compatible. However, customary credit maturities have developed, which are a maximum of ten years for consumer loans. As part of real estate financing, a significantly longer contract period is common.
In the case of consumer loans, the term corresponds to the period of interest rate fixing. In the case of real estate loans, on the other hand, this usually lapses shorter than the repayment period, so that the borrower negotiates again with the bank or decides on an offer from another financial institution before the end of the commitment period via the further interest rate.
For extremely short maturities, special credit service providers are available to lend their loans for a few days to a maximum of three or six months. Their offers are generally cheaper than the average interest rate on disposition credit.
In contrast to consumer loans, credit lines such as the discretionary credit, the part payment function of a credit card and the availability of credit are not linked to fixed terms. The repayment is exempted from the borrower either completely or with the exception of a small minimum amount.
Which terms are customary for consumer credit?
As a term for non-earmarked loans, many banks specify a minimum of two and a maximum of six to eight years. Both for shorter loan periods of half a year to one year and for a longer contract period of a maximum of ten years, the supply of available loans is reduced significantly.
Maturities of more than ten years are extremely rare in consumer credit. With a few exceptions, they are offered only for civil servant loans. These are available to some credit institutions not only for civil servants and civil servants, but also for employees who have worked for their previous employer for at least five years. When consumers want a loan term of more than ten years, they are specifically looking for official loans open to long-time employees.
Most financial institutions offer different terms for loans at intervals of only one year or maybe half a year. With very few commercial banks, customers have the option of choosing any maturity in one-month increments within the range offered.
For organized personal loans, basically the same terms as for bank loans are conceivable. However, most private lenders prefer to write credit requests with manageable durations because they do not want to commit themselves overly long.
What effects do the different repayment terms have?
The maturity of loans is decisive for the success of a loan application. In the context of a budgetary account, the bank checks whether the applicant can settle the accrued monthly installment with his creditable income. Decisive for the credit decision is therefore not the absolute amount of the desired loan, but the amount of the monthly repayment. This decreases when the loan applicant chooses a longer term. Thus, an extended repayment term often results in the bank agreeing to an initially declined loan application when submitting a revised loan application for an extended period of time.
At the same time, the term of loans has an impact on the total cost of borrowing, as the borrower pays the accrued interest each year. In addition, most financial institutions increase lending rates from seven to eight years, as the risk of default increases with the duration of the contract.
On the other hand, short-term loans with a maximum maturity of two years are also associated with higher lending rates for many banks. These are based on the fact that the credit bank distributes the costs associated with lending to a small number of annual installments.
Since the spreads for very short or longer than average maturities vary widely by bank, loan seekers perform separate loan comparisons for different maturities.
Which credit period is recommended?
It goes without saying that the term of loans should be in line with the amount of the loan. As a rule, there is a limit to the possible loan repayment periods, as the bank stipulates a minimum amount and a maximum amount for the monthly installment.
Consumer advocates also recommend that the term chosen for a loan does not exceed the useful life of the purchase financed by it. This rule is very useful. It means that a holiday loan can be credited with a one-year repayment term, while a longer lease term is possible for the purchase of long-lived assets. These differ according to the habits of the household.
The maturity of consumer credit is not a binding commitment to the chosen bank, as its early repayment is possible in principle. However, the credit institution may demand a prepayment penalty in this case if the loan agreement does not explicitly provide for the right to special unscheduled repayments. In the case of consumer loans with a term of more than ten years, premature loan repayment is possible at any time after the expiry of 120 months. In real estate financing, unlike consumer loans, additional capital repayments may be contractually excluded during the first ten years of the fixed interest period.