How to lower your credit costs – our 9 tips

You are planning to take out a loan? For example, to finance a car? You are not alone in Germany in this. In fact, in 2017 alone, more than 8 million loans were taken out in Germany. These are needed for different purposes. The most common of these are:

  • a debt rescheduling or the redemption of an expensive overdraft facility
  • the purchase of a car
  • the purchase of furniture such as a kitchen
  • Necessary renovation or modernization work on your own house or home
  • the acquisition of technical equipment

However, every loan also incurs costs in the process. Starting, of course, from the necessary repayment, since a loan must be repaid to the lender gradually, to the interest that will be due for the lending. How you can keep your credit costs as low as possible, we have summarized once here.

9 tips on how to keep your borrowing costs as low as possible at a glance

  • check whether the loan you want to take out really makes sense
  • make a comparison of the providers
  • check whether you really need a residual debt insurance (RSV)
  • choose the loan term wisely
  • Pay attention to your credit rating
  • avoid the overdraft
  • use the possibility of the special repayment
  • check with some regularity the possibility of debt rescheduling
  • keep your loan amount as low as possible

Check whether the loan you want to take out really makes sense

You want to buy a new car or need a new vehicle, because your old car unfortunately refuses to serve? Then, of course, in many cases, a loan must be obtained, because few consumers can afford to purchase a suitable vehicle without taking out a loan. Necessary modernization, renovation or conversion work also usually involves borrowing money.

However, you should ask yourself whether a loan is really worthwhile, especially if it is a question of "treating yourself to something" for once. The new notebook on installment, the new cell phone or the dream vacation on credit – these are purchases that can significantly reduce your financial capacity for years by taking out a loan. The question is always how high the benefit is compared to the effort or even the cost.

Therefore, check carefully whether the reason for which you want to take out the personal loan, a commitment of your financial resources for years on you actually justified.

Credit expert tip: Consider whether the benefit you get from a loan lasts at least as long as it takes to repay the loan. A lifelong dream of traveling the world can be a reason for a loan, as can the purchase of a very special piece of equipment. Ultimately, this depends on how important the reason for the possible borrowing is to you.

Make a provider comparison

Many car dealers will offer you car financing directly with it. Also your house bank comes gladly again and again with a new credit offer around the corner. But if you want to make sure that you really get the best conditions, you should definitely make a comprehensive loan comparison. The best way to do this is to use a comparison calculator on the Internet, such as the one you can find here.

In addition to the loan amount and the planned term, you can also specify the planned use and thus select the appropriate loan offers for your needs. In the offers you receive, you should pay particular attention to whether the loan offer is creditworthiness-linked and whether the effective interest rate is stated directly. With creditworthiness-dependent offers, you need a concrete offer that is tailored to your financial situation.

Check whether you really need a residual debt insurance

Residual debt insurance can be useful – but it is definitely a costly affair. Residual debt insurance is particularly important if you want to

  • Long runtimes
  • High loan amounts
  • Children in the household

are. In these cases, residual debt insurance can make a lot of sense. For short loans with a comparatively low loan amount, you can save a lot by waiving residual debt insurance.

Credit expert tip: A term life insurance in the amount of the loan for the duration of the loan concluded can sometimes be significantly cheaper than a corresponding residual debt insurance.

Choose the loan term wisely

The loan term is usually determined by you as the borrower. Here, the term is a decisive factor in the question of the installment amount. Often the interest rate also depends on the term of the loan. Before taking out an online loan, check what amount you can afford to pay each month and the maximum period over which you would like to repay your installment loan.

You should not set the monthly rate too low – for example, by an unnecessarily long term – because this can greatly increase the total cost of credit due to higher interest rates and a longer interest payment, can increase. However, your installment should also not be set so high that you have no more financial leeway.

Pay attention to your credit rating

Long before taking out a loan, you can do several things that can bring you a lower interest rate in the event of a necessary loan. The most important thing is to pay attention to the evaluation of your creditworthiness. For this purpose, you should regularly obtain a self-assessment from Schufa.

Check whether outdated or incorrect entries can be deleted. In addition, you can see from the existing entries what you can do to improve the rating of your creditworthiness even more. This may include, for example:

  • Avoid setting up multiple current accounts
  • do not use more than one, maximum two credit cards
  • Avoid taking out store cards with a granted credit line – this is often reported to Schufa as current credit, even if you have never used up the credit line
  • Always meet your payment obligations on time

Since most loans in the interest rate structure come along creditworthiness, you can often achieve a significant reduction in the cost of credit through this point alone, if you then need a loan in the future once.

Avoid overdraft facilities

The interest rates for an overdraft facility are significantly higher than those for a small loan, even in times of absolute interest rate lows. Interest rates of 12% and more are not uncommon. Therefore, if you are planning to make a purchase, you should never pay for it out of your overdraft facility, but rather apply for an appropriate small loan. You can find a wide selection of providers in our loan comparison here.

Use the possibility of unscheduled repayment

Pay interest only on the loan amount that you still have to repay after the last repayment. You can significantly reduce the total cost of credit if you make unscheduled repayments with some regularity. Even if the repayments are only one or two monthly installments, they can ultimately lead to a significant reduction in the term of the loan and thus in the total cost of the loan. You can find detailed information on this here.

Credit expert tip: If you plan to make unscheduled repayments, you should take this into account when choosing a lender. Not all banks and credit institutions offer this option.

Check with some regularity the possibility of a debt rescheduling

You have taken out a loan with a comparatively long term? Then you should consider with some regularity, but especially if something has changed in your circumstances, the possibility of a debt restructuring. Check whether you can find more favorable offers with the help of our credit comparison. If so, you should not be afraid to take the step of debt restructuring. Read more about sensible rescheduling here.

Keep your loan amount as low as possible

The temptation is definitely there – for example, for a debt restructuring or to pay off your overdraft facility, you need a sum of 5.000 euros. But the credit offer is so favorable – why then not directly 6.000 or 7.Take out a loan of EUR 000 and still make one or two purchases?

In principle: The higher the credit sum, the higher are also the credit costs. For this reason, you should always keep the loan amount as low as possible.

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