Loans have never been cheaper. This is exactly why many consumers are now taking the opportunity to finally realize long-planned projects with the help of cheap financing. The low-interest offers of online direct banks are particularly striking.
If branch banks often charge 7 percent or more interest on a short-term installment loan, some direct banks even advertise with interest rates below three percent. Online loans are even offered for zero percent interest. But be careful!
No bank has anything to give away – often only a clever marketing campaign hides behind the zero percent loan. However, according to a study by Good Finance, many online loans from direct banks are highly recommended.
The interest rate is not the only factor, according to Good Finance. We’ll tell you what to look out for when taking out an online loan.
Compare loans online
There are several ways to find the right loan provider. For many consumers, looking at a loan comparison is the first step in the search for the right online loan. Good comparison sites on the Internet provide an overview of current providers and conditions at the push of a button.
With the help of a loan calculator, various alternatives regarding the term and the loan amount can be run through in no time. Since 2010, banks have had to state the annual percentage rate for credit-related loans, which applies to at least two-thirds of all customers.
In addition, according to several GFI judgments, banks are no longer allowed to charge loan processing fees for consumer loans. With such regulations, legislators have made it significantly easier for consumers to be able to compare loan offers directly with one another.
Anyone who obtains self-disclosure from financial standing once a year free of charge keeps an eye on their income and expenses and still has money left at the end of the month can very likely expect to get the interest rate specified in the loan comparison.
However, anyone who has not been able to shine with exemplary payment behavior in the past or who has other loans with high monthly charges on them should expect a higher interest rate.
Regardless of the creditworthiness, it is always advisable to make several loan inquiries from different providers and to obtain concrete written offers before concluding a loan contract. In our experience, not only the online direct banks should be included here.
Even if branch banks have a reputation for selling their products more expensive than direct banks for the same performance, this does not always have to be the case. In practice, it can be seen that branch banks also have products with attractive terms in their portfolios, or that they offer purely online product lines in addition to the expensive branch products.
Even those who have already been rejected by the bank should look outside the box and look for alternative financing options. Borrowers with average creditworthiness, employees without long-term employment or self-employed and freelancers on online credit marketplaces may have significantly better chances of getting an online loan.
There, the loan is not granted by a bank, but by many private investors. There is also a credit check here, but the acceptance criteria often differ greatly from those of the banks. Loan seekers who are admitted to the marketplace after the credit check have a better chance of getting a loan than with the bank. Because on a P2P credit marketplace, every investor decides who he wants to lend his money to and who doesn’t.
Both banks and online credit marketplaces obtain information from financial standing to check their customers’ creditworthiness. If you make several credit inquiries from different providers, you should make sure that the financial standing inquiry has no influence on your financial standing score. Accordingly, the financial standing request should always be made as a “condition request”.
However, once you have a negative financial standing entry, the chances of obtaining a loan are virtually zero, both with banks in Germany and with online credit marketplaces.
In such cases, a loan without financial standing can be the solution. The so-called “Swiss loan” does not require financial standing information and is therefore particularly suitable for private individuals who may have a negative entry in financial standing, but otherwise have a good credit rating.
The Swiss loan is tied to precisely defined criteria that the applicant must meet – for example, a certain minimum income or a continuous minimum length of employment with the same employer.
Choose the right key credit data
While the house bank talks to the bank advisor to discuss exactly what the current financial situation looks like and what rate the borrower can afford at most, this advisory service for online loans often takes place afterward – i.e. after the loan application – if at all,
Therefore, when applying for an online loan, the applicant is initially obliged to find out what loan amount he actually needs and what is the maximum monthly rate. In order to determine the amount that can be paid monthly without problems, it is advisable to keep a budget book over several months, which compares the monthly income with the expenditure.
The borrower may still have savings that reduce the loan requirements that are actually needed. Perhaps there are already other loan liabilities that can be summarized in the course of the new loan, which leads to a significant reduction in the total credit burden. Often residual debt insurance is offered with the online loan (note: the checkmark in the application form is often already set in the default setting!) – but is this really always necessary?
The borrower should do all of these considerations before applying for the new loan. If you need support here, you can also contact reputable credit experts before applying for your online loan. Our Good Finance staff will be happy to answer any questions you may have about your online loan.
The advisory service is included and the borrower can be sure that their overall financial situation will be optimized and that the new loan will be tailored to their individual requirements.
Pay attention to flexible repayment conditions
What use is the cheapest online loan if you are tied to fixed monthly installments and a fixed term? Let us assume that a borrower takes out an online loan without installment breaks and without early repayment options.
Now, in one month, he has significantly higher expenses than usual due to an unplanned, high bill. Since he cannot pause the loan, he has no choice but to either leave the bill open or overdraw his account to settle the bill. Both have a negative impact on his creditworthiness.
On the other hand, if, for example, he has inherited or has a higher income due to a change of job, he could pay off larger amounts in some months or even repay the full loan amount early. This would make him debt-free faster and save a lot of money. As of 2010, banks have only been able to demand a prepayment penalty of up to 1% of the remaining debt for early repayment if the loan has been running for at least 12 months.
However, if the loan agreement does not allow early repayment, the interest payments must continue to be made until the end of the term. Hence our tip: In the loan agreement, make sure that you retain a certain amount of flexibility when repaying your loan.