A loan for 1 year, as the name suggests, means an installment loan with a total term of 12 months. Only 12 months as a term are rather uncommon in the credit system, which is why the short term is mostly used for micro or small loans.
12 months installment loan
The monthly payments are always calculated by dividing the term, in this case the 12 months, by the total amount of the loan, which is made up of interest payments + loan amount. This shows that the monthly payments, especially for larger loans, are enormous and can hardly be managed by private individuals. Even with a small loan, which is colloquially put at a maximum amount of 5000 USD for private individuals, the monthly repayments can hardly be managed with a low or average income.
Therefore, taking out a loan for 1 year is only recommended if you are either sure that you can pay the full amount of the repayments on a month-to-month basis, or if the loan amount is so low that, conversely, the repayments are also very high turn out small. You can quickly find out how high the monthly financial burden is by using a credit calculator, which also provides information about the total costs of the loan.
Repay the loan as soon as possible
The main reason for taking out a loan for 1 year is in most cases that the borrower wants to “get rid of the loan” as soon as possible in order to be debt-free in the future. This starting point is certainly also the right way to prevent possible over-indebtedness and to keep your own creditworthiness and creditworthiness at a high level.
Nevertheless, borrowers should under no circumstances undertake the repayments for a loan, since the payment in installments not only significantly reduces their own creditworthiness, but also the resulting interest on arrears can quickly drive up the total cost of the loan. A loan for 1 year is therefore only worthwhile if your own income is high enough to cope with the short term and the resulting high monthly repayments, or if the credit is so low that a longer term for both parties only would be unnecessary and disruptive.
So whether the loan is used with such a short term always depends on the individual situation and the financial condition of the borrower. In any case, get a comprehensive overview of neutral and independent loan comparisons before you accept them, which you can use as often as you like without obligation and free of charge.