10 loan myths you should know
If you are looking for a loan, you can count on lots of advice. These are not always true, although many persist. In fact, for some, the opposite is true. We’ve listed the 10 most common credit myths for you and looked closely at them. In our post we will tell you what you can believe and what belongs to the realm of fables.
Myth 1: Rescheduling by credit is not worth it
If you have one or more old loans that carry a relatively high interest charge, it is sometimes worth reposting the loan. There are 2 basic arguments for this. The first results from the current interest rate, which is historically low. With such a low-cost loan, you can pay off all outstanding loan amounts in one fell swoop, in order to save money in the medium term through the dropping interest rates.
The second aspect concerns the clarity. The installment loan for your car, an outdated loan, with which you have renovated your apartment, as well as another legacy from the study just put together. In the future, you will only pay for one single loan and have the amounts in view at all times. In addition, the lower interest rates offload your household budget. Note, however, the possible fees that may be incurred for the replacement of old loans. For loans from June 2010, the so-called prepayment penalties are regulated by law and must not exceed 1% of the remaining debt.
Myth 2: Your house bank offers you the best conditions
You have had your accounts with one and the same bank for years and have known the bank adviser for a long time. Customer loyalty has nothing to do with the loan conditions offered, as you usually do not receive a bonus on the additional costs of credit. Banks sell their products to clients like you and want to make money from them. It can not be ruled out that you can get a loan elsewhere on terms that are better suited to you or simply cheaper.
So, if you need a loan, it’s a good idea to compare your house bank’s offer with a few alternatives. Use our credit comparison to compare offers. The conditions under which you receive a loan are always based on your credit rating, which is also calculated based on your current credit bureau score.
Protect your credit bureau
Fewest credit seekers know that already the request for a loan can have negative effects on the own credit bureau value. So, when you ask for a loan offer, pay attention to the exact wording. If the bank asks the credit bureau about your financial credibility, it should do so as a “request credit terms”. This is then considered neutral by the credit bureau. However, once the request is on “Request Credit,” your score will be affected. The information about you is identical in both cases to the potential lender.
Myth 3: Loans with negative interest rates are always worthwhile
For some time, loans with negative interest rates have been on the market. The selection is limited to a few providers who actually want to get back for less than 1,000 euros loan amount less than they lend. Here is already the first catch to find: the loan amount is not freely selectable at the end, but is limited to this four-digit sum. In addition, such a loan is not to be had in unlimited choice for the consumer but is given only once. So you can not earn any money with it, except for the 50 to 80 euros, which you have less to repay. Obviously, this loan offer is for marketing purposes only.
With such a lock offer the lenders want to bring into the conversation and address above all customers with particularly high credit rating. It is imperative that you meet this criterion in order to obtain a negative interest loan of more than € 1,000. Furthermore, you should note in such a loan that it brings the mandatory entry to the credit bureau. The fact that this affects your score in a negative way, is obvious. Finally, there is noted that you already have a loan for such an amount needed. As a reward, you should therefore not consider a loan with negative interest. So before you apply for one, you are not just looking at the savings, but also the conditions and the potential impact on your future creditworthiness. Find out more in this article.
Myth 4: There is no way out of a loan agreement
First, you can cancel a loan contract at the very beginning of the term by resigning. This is only allowed in the first two weeks. If you want to get out of a longer-term installment loan, for example, because you want to repay with a low-interest loan, that is also possible. Then you almost cancel your current loan and pay off the outstanding amount in one go. The bank may charge you a prepayment fee as compensation.
This requirement is correct, but since 2010 may not exceed 1% of the remaining debt. This can be worthwhile, because you will be spared the future interest payable. A number of banks dispensed from the outset with such “penalties” for early repayment of the remaining loan. In the future, when making a possible loan decision, look for how your lender handles the issue of prepayment and, before signing it, ask about this option. Another interesting option in the context, incidentally, is the special repayment. This allows you to reduce your debt burden repeatedly over special payments made to a certain annual level. The myth that you have no chance of getting out of an ongoing credit agreement prematurely is refuted.
Differences in the types of loans
The 14-day cancellation period is basically possible for all credit agreements. Loans with variable interest rates, for example, can be terminated at any time within a period of 3 months and without a prepayment penalty. In the case of possible form errors premature termination of a classic loan agreement is generally permitted. If it is a construction financing, then your withdrawal is possible after 10, 5 years without compensation despite longer-term fixed interest.
It ultimately depends on the type of loan under which conditions you come out (with or without extra costs).
Myth 5: The credit line is cheaper than an installment loan
The correct formulation would have to be “more convenient than” for this sentence to be true. In fact, it is easy to use to a certain extent with the credit line. No applications or examinations are due, but goes to the exhaustion of the discretionary framework quite easily and often unnoticed in the red. The decisive disadvantage of this form of credit, however, is that not infrequently overdraft rates are calculated in the double-digit range. These also appear on the bank statement and are mostly manageable amounts in euros.
A simple comparison of our credit comparison shows that a manageable loan over 5,000 euros is available from 0.69% APR. With a term of 5 years, the monthly rate in this example is 84.80 euros. Even the first 10 results of such a search bring offers from reputable credit providers, which are below an effective interest rate of 2%. By claiming such a loan, you can split the borrowed money and avoid slipping into the bottom of your bank account. You have to repay the loan amount every month and it can be scheduled as a fixed size. You save yourself the regular overdraft of your account until the next salary and above all the comparatively high disbursement interest, which you get deducted from your bank.
Myth 6: The “shop window interest rates” offer the best deal
Behind the low interest rates shown in the window of a bank, there are tariffs that are supposed to attract customers. The little word “down” before the incredibly low interest rate already points out. This is by no means a lie, because the bank will be able to offer loans on such cheap terms really. However, you can not rely on that because the exact interest rate on a loan always depends on you and your current situation.
The exact interest rate for you is calculated based on individual factors that only come to the table during the consultation. First of all, the amount of the loan you wish to borrow and the modalities of the repayment in your case are decisive for the binding percentage. Your personal situation, conceivable security deposits, your scoring at credit bureau and your regular salary will then result in your credit rating. When all these aspects have been clarified, you will learn the actual interest rate that you can expect. Again, it is advisable to obtain from several providers non-binding information – for example, via our credit comparison. For this you should know that the annual percentage rate of interest plays the decisive role for you. Only this information already includes all costs incurred by you.
Myth 7: The credit bureau is your opponent
The “protection community for general credit protection”, short credit bureau is committed to neutrality. However, a credit bureau information can be a stumbling block for you on the way to a (cheap) credit. At the data collection institute all information about your behavior in financial matters comes together and is evaluated. In this way, the credit bureau creates a score that will provide information about your reliability in money and financial transactions. That gender, home address or age play a role, is rightly criticized.
According to their own information, the data stored at credit bureau is more than 90% positive in nature. This in turn means that a positive credit bureau score will also help you to get a loan. Self-employed persons, who usually have a harder time with a loan application, can easily obtain a loan through a positive credit bureau information. Basically, the credit bureau works neither as your counterpart, nor as your advocate, but as an independent authority.
Check your credit bureau
If obsolete or incorrect entries exist at credit bureau to your disadvantage, you can request a correction or deletion. As a consumer, you are entitled to request a free excerpt once a year. Use this right to get an overview and complain about incorrect data about yourself. How to request such information can be found here.
Myth 8: The credit bureau belongs to the Bundesbank
The company is neither tied to a specific bank nor is it state-owned. What few people know: credit bureau is a private company specializing in the collection of consumer assets. Its monopoly-like position arises from the fact that it cooperates and interacts with the overwhelming majority of banks, companies and traders. Your credit rating depends significantly on credit bureau’s assessment – whether you’re applying for a credit card, signing up for a cell phone contract, or financing a new car. The data then always flows in both directions: the bank, for example, provides information about your loan request or that you want to open an account and in return gets information about your (probable) payment history.
In its actions, the credit bureau is not subject to state supervision, as is the case with a federal authority. If you have doubts about your own values, you must contact the credit bureau directly for clarity. As a consumer, credit bureau is obliged to provide you with information and once a year you can use this right for free.
Myth 9: Loans without credit bureau are a cost trap
With a loan without credit bureau you can always get money. The only requirement is your current credit rating. The loan is granted to you via a so-called “Swiss loan”, behind which is a foreign bank. Outside Germany, there are no comparable institutions like the credit bureau and lending takes place without this “third party”. If you apply for such a loan, it will depend on your counterpart exactly what collateral you can offer, what your financial situation looks like, and up to which installment rate you will be able to bear in the future.
When it comes to such a loan without credit bureau, should be the talk of reputable banks from Switzerland, Liechtenstein or other European countries. Under certain circumstances, they will check your individual creditworthiness and may require higher loan interest rates. You have the advantage that your credit bureau information is completely ignored. On the one hand, this applies to the entry you will get for a loan from a German bank. On the other hand, the credit bureau, like here in Germany, can not put a stop to the bill, where a loan request can still fail because of your entries at the last moment.
As a debt trap, on the other hand, providers can turn out to offer you such loans in a rather lurid manner. You can find out here how to get a “Swiss Credit” and what you need to be aware of in this article about loans without credit bureau.
Myth 10: A 0% loan is always free
For many dealers, financing offers with 0% interest can now be found for cars, furniture or electronics. In some circumstances, despite the favorable promise can still incur significant costs. To be sure, you should read the fine print in a so-called 0% financing. Not infrequently, such loan purchases can only be obtained over relatively long terms. The tempting offer without interest then applies, for example, only for a certain period of time. Thereafter, a follow-up financing is necessary to pay off the remaining debt. If you are not aware of this, you may be signing up for a loan that will cost you dearly the bottom line.
Often, low repayment rates and installment purchases at 0% or very low interest rates are associated with a long repayment period. Therefore, make sure in such a loan purchase exactly how long it is cheap and from what time a possible follow-up financing is in the room. For example, if the 0% promise is only valid for the first 24 months, you should be able to calculate exactly what payment amount you should expect in total. An overpriced replacement after a certain period of time can make your purchase more expensive in the end than if, for example, you had financed it from the outset with a low-cost bank loan.
When one or the other supposed fact about credit worthwhile to look more closely. Not infrequently, it may conceal a misconception or myth that simply lasts for a long time and is thus seen by many consumers as the truth. If you know the role of credit bureau or get informed about various loan offers before you simply go directly to the bank, you benefit. With our 10 tips, you can find out what is really important in this area and where you better ask a second time.
Pack up a possible loan request so that you avoid mistakes and go to a counseling session with prior knowledge. Then protect yourself from misinformation and get a better result for your financial needs. In principle, every institution that lends money earns its money. As this is your money, you should be careful enough not to pay too much in the end. Special vigilance is always required when offers stand out from the competition at first because of their extremely favorable conditions. Therefore, you should always look at how much truth is actually behind a myth about credit.