Why are mistakes when comparing loans dangerous?
Anyone who concludes a loan agreement with unfavorable conditions bears an additional financial burden – usually over several years.
The greater the loan amount paid out, the greater the loss of personal economic performance.
Loan comparison calculator support potential borrowers in finding suitable conditions. However, they do not protect against wrong decisions that result from incorrect interpretation of the comparison results.
Before concluding a loan agreement, errors that can have expensive consequences must be ruled out.
Common mistakes when comparing loans
Financial experts have identified a number of mistakes that financial laypeople regularly make when looking for a loan.
Only inquire at your house bank
The house bank is often the first point of contact for a loan, but does not always offer the most favorable conditions. If you compare different offers, you can reduce your financial burden during the term.
One-sided focus on the effective annual interest rate
The effective annual interest rate is the most important comparison criterion. The legislature has made regulations about which costs this value must reflect. These specifications determine which cost items may not be taken into account – and some financial institutions take advantage of this.
The effective annual interest rate provides extensive information about the full rate Loan costsHowever, credit institutions may charge additional fees, for example for account management or special repayments. In addition to looking at the effective annual interest rate, it makes sense to check the contract conditions to identify hidden costs.
Poor financial planning
The Internet makes it easy to conclude loan agreements. Likewise, buying an expensive computer, a new vehicle or booking a trip is just a few clicks away. Anyone who fulfills short-term consumer wishes by taking out loans suddenly finds themselves in a debt trap. The result is a vicious circle of increasing monthly charges, a deteriorating credit rating and therefore further increasing credit costs for new contracts.
Before taking out a loan, borrowers ensure that financing is necessary. Does it have to be a four-week luxury vacation in the Maldives or is two weeks enough to relax? Is the desired vehicle available with 20 hp less, but 10,000 euros cheaper?
Sound financial planning ensures that borrowers maintain control over their financial circumstances.
Too many credit inquiries
If borrowers make multiple loan requests from different financial institutions, this has a negative impact on their creditworthiness. The reason: Financial institutions assume that a creditor is in a debt trap and has lost control of his financial situation. From the financial institutions’ perspective, this suspicion is already associated with an increasing risk of loan default, for which they seek compensation in the form of higher interest rates.
It is better to make an “inquiry about the loan conditions”. The credit institutions do not regard this wording as a formal credit request.
Does credit insurance make sense?
Financial institutions often offer loans with additional residual debt insurance. This increases the monthly payment if a borrower defaults. Taking out residual debt insurance is always voluntary. These insurances are controversial among financial experts: some describe them as an unnecessary cost driver, while others see them as a last resort for borrowers from possible personal bankruptcy. Whether it makes sense to take out insurance depends on your personal circumstances and risk aversion.
Recognize and avoid mistakes when comparing loans
Taking out a loan needs to be carefully considered. Anyone who signs a loan agreement hastily or misinterprets the results of a loan comparison will bear unnecessary financial burdens for many years. If you compare thoroughly and critically question your decision, you can save several hundred euros or more over the life of the loan.
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2023-12-19 22:20:31
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