MonthFebruary 2019

Payday Loans: Term for loans

 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?

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?

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.

Advantages and Disadvantages of a Bank Loan

Banking Loan

Banking Loan

In the banking loan operation, a financial institution grants an amount of money to the company in exchange for the payment of interest, contractually establishing the form in which the company will have to return the loaned capital and pay those interests. Financial entities usually require some type of personal guarantee (the global assets of the company or a third party) or real (a specific movable or immovable property), which strengthen the operation, this being one of the main difficulties they face Applicant companies, especially the smallest or the most recent ( startups ). In the event that the loan includes a mortgage guarantee, in such a way that its return is secured with a real estate property, it will be necessary that the corresponding contract be executed in a public deed intervened by notary public.

According to the interest rate, there are fixed rate loans, in which the rate remains fixed and constant throughout the life of the operation, and variable interest, which is likely to rise or fall depending on the evolution of some indicator that is taken as reference, as. for example, the famous Maxibank.

The return of the loaned capital and its corresponding interests is made through amortization installments, which according to the form in which they are paid originate different methods of repayment of the loans, being the most usual the following three:

  • Single installment, where both the settlement of interest and the return of capital occur at maturity through a single payment. It is the simplest amortization system, used mainly in short-term loans, which I will analyze below.
  • Variable fees, where loans are amortized by variable installments in geometric or arithmetic progression.
  • Constant installments, where loans are amortized through constant installments. It is the most common method, known as the French system, where capital is amortized on an increasing basis, while interest decreases period by period. It can be used in both fixed rate and variable rate loans. If it is a fixed rate, all quotas will be constant and equal, while if it is variable, the quotas will remain constant in the period that elapses between a revision of the interest rate and another.

From a business point of view, a distinction is made between loans granted in the short term (less than one year), which are used to finance cash offsets, being an alternative to credit accounts, and long term (more than one year), which are used to finance non-current assets (for example, the purchase of a machine or a computer). The negotiation with the bank in both cases is different.

In short loans, the bank will value that the money will be used to finance treasury and not for another purpose. In the second case, in the long term loans, the cash flow (charges minus payments) that will be able to produce the concrete good that is acquired will be analyzed, which will condition the repayment of the loan and should be adapted as far as possible to the agreed amortization calendar. If the non-current asset to be financed is not of a productive nature, as is the case, for example, with an investment in facilities that fulfill the function of offices, the cash flow to be considered will be the general of the company, which will allow the repayment of the loan under the agreed conditions.

Regarding the main advantages and disadvantages of financing through a bank loan, I can think of the following:

Advantages of bank loan:

Advantages of bank loan:

  • It allows financing the acquisition of a good at one time.
  • The forecast of the payments to be made is relatively simple, due to their amortization through periodic installments.
  • It allows to know at all times the living debt that remains with the bank.

Disadvantages of bank loan:

Disadvantages of bank loan:

  • It obliges to determine with exactitude the amount of the funds that are requested, on whose total amount interest will be paid.
  • It is not possible to reuse the funds once they are used, unlike what happens with the credit account.
  • As a general rule, it is necessary to provide guarantees that guarantee the amount borrowed.

 

 

Who gets a loan from Intrasavings bank?

The Intrasavings bank development loan for you

Not only savings banks, Volksbanks and other credit institutions can apply for loans,  the Intrasavings bank also grants loans. Unlike the numerous direct and branch banks, however, Intrasavings bank is a public-law institution and the loans granted are always earmarked, so they must not be used at will.

Who is Intrasavings bank?

Looking at the balance sheet total, Intrasavings bank is the third largest bank in Germany with 489.1 billion euros in 2014. It was founded in 1948 and today is the world’s largest national development bank.

It is subject to the legal supervision of the Federal Ministry of Finance and employs more than 5,500 people. In addition to its headquarters in Frankfurt am Main, Intrasavings bank has branches in Berlin, Bonn and Cologne as well as around 80 offices and representative offices around the world. Their goal is to meet the economic, social and environmental challenges of our time and to improve the living conditions worldwide. Their task is specifically to financially support business start-ups and medium-sized companies, but also to finance and promote infrastructure, housing and energy-saving projects, as well as projects related to environmental and climate protection. Their promotional volume in 2014 amounted to around € 74.1 billion.

How does Intrasavings bank work?

As a development bank, Intrasavings bank does not operate its own branches, but operates according to the transit principle. This is how it works: A customer submits a loan application to his / her house bank before investing. The bank reviews the application and – as a financing partner of Intrasavings bank – passes it on to Intrasavings bank, which refinances the loan with favorable interest rates. The bank then concludes the loan agreement with the customer and pays out the loan amount. Refinancing rates are always maximum interest rates that the bank may or may not pass on to its clients. It can also offer a lower interest credit if it waives part of its own margin. Some banks are taking advantage of this opportunity to offer their clients attractive loan offers or acquire new customers. However, the banks often attach this to certain conditions such as an additional loan from their home.

For whom and what does Intrasavings bank offer loans?

Intrasavings bank offers financial support in the form of loans and loans to private individuals, companies and public institutions. Specifically, Intrasavings bank supports medium-sized companies, business start-ups and freelancers with medium and long-term financing for start-ups, innovations, general corporate financing and projects in the field of climate and environmental protection. For private individuals, Intrasavings bank offers financing for energy-efficient construction and renovation, the reduction of housing stock and the creation of residential property. In addition, she invests in the education of young people, which she understands as financing future investments. Particularly popular, however, are Intrasavings bank’s construction loans and their funding programs for the energy-efficient renovation of older homes. In addition, public institutions are also funded and international financing taken over. The promotion of Intrasavings bank is usually independent of the age and marital status of the applicant.

Intrasavings bank Kredit for home equity financing and energy renovation

If you want to fulfill your dream of owning your own home and are looking for financing to buy or build your own home, you should consider the loan offers from Intrasavings bank. In fact, Intrasavings bank grants loans of up to EUR 50,000, whereby the amount of the subsidy depends on the energy efficiency of the new building. For the construction of a Intrasavings bank energy efficiency house, the interest rates are even cheaper, also the homeowners can take a repayment subsidy to the loan. Special repayments are also possible.

The energy-efficient refurbishment of older houses is being financed very cheaply by Intrasavings bank. Up to 75,000 euros are provided per person, the interest rate is negligible with about one percent. In addition, individual energy measures such as the insulation of the roof, the replacement of old windows or the renewal of the heating are promoted. The maximum loan amount for this is 50,000 euros. In addition, homeowners receive a repayment allowance for all refurbishment measures, meaning that they de facto cost the loan almost nothing in the first ten years.

Intrasavings bank Kredit for the age-appropriate conversion of existing real estate

In the face of demographic change, the demand for age-appropriate real estate is growing. Therefore, Intrasavings bank also promotes the age-appropriate / barrier-reducing conversion or the purchase of an age-appropriate converted property with loans of up to 50,000 euros. Again, the interest rate is just one percent and special repayments are possible. Regardless of whether you are interested in a grant or Intrasavings bank loan, the following applies: The receipt of the funding is subject to certain conditions. This includes, for example, that an approved expert must confirm after the renovation that the property now meets the standards of an efficiency house. When implementing individual energy actions, certain minimum technical requirements must be met. Experts therefore recommend that interested parties inform themselves at an early stage about the prerequisites for funding. We recommend a comprehensive consultation of a specialist, who not only shows the possibilities of energetic renovation, but also creates a profitability calculation. An energetic measure only makes economic sense if it is worthwhile and the costs do not exceed the benefits.

Incidentally, the various support programs can also be combined with each other. An example: A customer who buys an older house and wants to refurbish it energetically and modernize it in an age-appropriate way can theoretically use all three above-mentioned funding programs. The loan would then be no more than € 50,000 (from the home ownership program) plus € 75,000 (from the program for the renovation to the Efficiency House) plus € 50,000 (from the program for age-appropriate conversion), in total € 175,000.

Loans around the education

 

The promotion of education is the second focus of Intrasavings bank. Your most well-known promotional product in this area is the Intrasavings bank Student Loan. Postgraduate studies, first or second degree programs, doctorates and distance learning courses or semester abroad are funded – regardless of the field of study. The funding is independent of the income of the student and his parents and without collateral, the repayment is flexible and moderate. Further conditions for the grant: The student must be between 18 and 44 years old. He has to study part-time or full-time at a state-recognized university in Germany. In addition, Intrasavings bank also offers BAföG bank loans for financial support for the degree, a master BAföG, an educational loan (for training) and a Bavarian fee loan for extra-occupational Bachelor programs.

What else does Intrasavings bank promote? 

kfw loans

In addition to subsidies for private individuals and SMEs, Intrasavings bank also finances the municipal and social infrastructure in projects for urban barrier reduction, energetic urban renewal or municipal energy supply. Refinancing from other state promotional and credit institutions is also one of Intrasavings bank’s tasks. In addition, Intrasavings bank finances projects of major German and European companies with the aim of becoming and remaining competitive and competitive in international markets. These financings are aimed primarily at companies with a focus on export, infrastructure, climate and environmental protection and raw materials supply. Intrasavings bank also works together with governments in developing and emerging countries, advising and promoting them in reform processes and investments in order to sustainably improve the economic and social situation of local people, to reduce their poverty and to contribute to climate and environmental protection,

Combinations of bank and Intrasavings bank loans

Intrasavings bank loans are usually grants and subsidies combined with a conventional bank loan. There are certainly big differences in the terms of this combination financing. For example, banks sometimes demand so high interest rates themselves that the interest rate advantage of the Intrasavings bank loan expires. Therefore, you should always keep an eye on the terms of the blending operations and not just consider the interest rates of Intrasavings bank. The Stiftung Warentest and other consumer organizations take these mixed conditions at irregular intervals under the microscope and compare them.

 

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