When you take out a loan, costs are incurred in the form of interest. How high the lending rates are depends not only on economic aspects but above all on your financial situation. Although, as a borrower, you can not directly influence the level of interest rates, there are certain things you can do to get credit terms that are as cheap as possible. In the following we have summarized 5 tips for you:
1. Ensure a good credit rating
The amount of interest depends, among other things, on the creditworthiness of the person wishing to take out the loan. Accordingly, it is important that you keep an eye on your credit rating. For this you can, for example, inquire at the (protection association for general credit protection) and request information about your own creditworthiness. This gives you an overview of your credit score and what entries were made at the . If incorrect information is stored, you should have it deleted if possible. It is generally helpful for a good credit rating if you have always paid your bills on time in the past. In addition, you should make sure that you do not ask unnecessarily many loan applications, but initially only ask the credit terms. Such a request has no effect on your credit score – it is “neutral”.
2. Choose the right runtime
Before you take out a loan, it is always advisable to draw up a detailed budget. Face your expenses against your earnings. After deducting all expenses, you should have enough money left to easily repay the monthly installments of your loan. So get an overview of how much money you’ll actually get at the end of the month. The loan amount and term should then be chosen so that there is enough financial scope. Our loan calculator can help you get an idea of how much the monthly installments can be, depending on how the loan amount and maturity change. Note that the rate of installments is lower for a longer duration. The annual percentage rate of charge, on the other hand, is lower if you repay the loan in a short time. At this point, you should weigh exactly what is most favorable in your situation and what you can afford.
3. Indicate the correct purpose
When you apply for a loan, you are asked to select a purpose for the loan. The indication of the purpose of use may also have a positive effect on interest costs. Assuming you want to buy a car, be sure to include “car” as the purpose of your loan. In this case, the car purchased is a security for the bank. If the borrower is unable to pay the loan installments, the bank could sell the car and keep the proceeds. For banks, the risk here is therefore not quite so high, which is why they often offer cheaper lending rates for loans with purpose.
4. Get a second borrower on board
When applying for credit, you can also choose to specify another borrower. This can be worthwhile for two reasons. A second borrower can not only provide better credit terms, but also increase your overall likelihood of acceptance. Especially if your own credit rating or your own income are not so high, a second borrower can have a positive impact. For the lending bank, this is ultimately an additional hedge. A second borrower thus reduces the risk of defaults, which is why the bank usually also offers cheaper lending rates here.
5. Compare loan offers from different banks
In addition to the above points, it makes sense to compare different banks and their loan offers . This is even possible online via comparison portals. This allows you to compare the terms of various loan offers at a glance without having to visit various bank branches. In addition, you have the advantage that you can inform yourself about the terms of the loans without negatively affecting your score. In addition, comparison portals usually offer loans at more favorable terms than the banks themselves. So you can easily obtain an overview of various loan offers with favorable conditions.
So, if you want to borrow at the best possible conditions, you have several options to improve not only your chances of getting a loan, but also the loan terms. The most important thing, however, is to pay attention to your creditworthiness. If you always pay your bills on time and you also pay attention to a balanced budget, you create a good basis for favorable credit conditions.