If you have to borrow a large amount of money, you can simply apply for a loan from your bank and secure favorable conditions thanks to the current low-interest-rate level.
That sounds easy. However, there is a high risk of falling into one or the other trap when concluding a loan contract. In the following article, we will show you what loan applicants should pay attention to and which mistakes should absolutely be avoided.
In particular, if the loan is requested from the branch bank, good preparation for the conversation with the bank advisor is essential. If you have no or only incomplete documents with you, you are not doing yourself or your bank advisor a favor. Because your counterpart has to get a precise picture of your financial situation in order to decide whether he can give you a loan and you are able to pay it back. Most installment loans are credit-dependent.
This means that the interest rate you get as a borrower is directly related to your credit rating. It is the task of the bank advisor to evaluate this. Even if you have all the relevant data and figures regarding your income and monthly expenses in mind, the relevant documents and evidence will be required as part of the credit check.
In addition to your bank statements and proof of salary (at least the last three months), don’t forget your ID card. Ideally, you should even have a household book that you have been maintaining for a certain period of time.
This gives the bank advisor a very good overview of your income-expenditure situation and can lead to a quicker loan decision – provided the budget book shows a monthly surplus, which can be used to service a loan installment.
Research in advance
Before you talk to your bank, think about the exact financing requirements for your project. Especially with more complex projects such as the purchase of a home, it is easy to overlook the cost components that actually have to be co-financed.
In addition to the pure purchase price of a property, for example, there are additional costs for a notary or real estate transfer tax. The interior or any changes to an existing property should also be covered by the financing. It is not uncommon for property buyers to miscalculate when calculating the total cost.
In any case, get comprehensive advice from experts when you are planning to purchase a property. It is also advisable to draw up a precise cost plan and to allow for a certain buffer for emergencies.
If you already have a loan offer from your house bank, don’t forget to negotiate with your advisor. If you have already researched in advance and compared the conditions of different providers, you will significantly improve your negotiating position. Ideally, you already have one or two specific offers from other lenders, which makes the negotiation with your bank advisor even easier for you.
What can worsen your negotiating position is time pressure. If the bank advisor realizes that you need a loan very urgently, he will probably be less helpful to you than if he feels that his offer is just one of three good alternatives. So don’t let the broker or real estate seller put you under pressure.
Even if it is tedious – there is no way around reading the entire loan agreement including the small print carefully. Essential information is often hidden in the small print. Often, loan seekers are too comfortable to ask the bank about matters that they do not understand in the contract and to have them explained again.
But you shouldn’t buy the pig in a poke with a loan agreement – after all, it’s about your finances. Remember that depending on the loan term you choose, you will be bound by this contract for the next few years.
In addition to the interest rate on your loan, pay particular attention to special regulations in the contract, such as the possibility of being able to pay off your loan early free of charge.
Many lenders also give your customers installment breaks. This means that you can easily suspend your monthly installment after consulting the bank if you have higher monthly expenses or lower earnings than planned.
Some bank consultants are happy to urge your customers to take out residual debt insurance. However, don’t let anything catch your eye that you don’t really need. Residual debt insurance often only increases the cost of your loan without you actually claiming the insurance benefit. Before you conclude the contract, check carefully whether you actually need such insurance benefits.
Influence on loan terms
Many borrowers do not even know that to a certain extent you can also influence how high the interest rate on your loan is. Even before applying for a loan, loan seekers should find out what their creditworthiness is like.
In addition to the income-expenditure situation, which can ideally be presented with the help of a well-kept budget book, the financial standing score, in particular, has a significant influence on the loan decision and the level of the interest rate. You cannot change your current financial standing score directly.
However, you can take care that this is not incorrectly calculated on the basis of outdated data. You should, therefore, request information from financial standing once a year. This is free of charge once a year and gives you a good overview of the information that financial standing has stored about your contracts and your payment history.
If you find incorrect or out-of-date data, you can have financial standing correct or delete them. This is how you ensure that your financial standing score is always determined on the basis of the correct data.
You can also benefit from lower interest rates when applying for your loan – for example, if you specify a second loan applicant with your own income. As a result, the bank estimates the total income of both applicants, which in turn improves the credit rating.
The indication of the intended use may lead to more favorable conditions. For example, if the loan is to be used to finance a car, banks are often willing to pay lower interest rates because the car is a security for the bank.
If you want to redeem an old loan, it makes sense to also indicate “debt restructuring” in the purpose. The new bank knows that the existing credit rate does not have to be included in the fixed expenses, but that the old rate is replaced by the new credit rate.
That improves the credit rating.