For different purchases, there are also different types of loans that are tailored to the specific purchase request. For most people, a car or a house cannot be financed “just like that”. Such considerations require good planning as well as good funding. As everyone knows, there are various types of financing in the financial sector, depending on what you want to finance. But not only things like a car or a house require a loan, more and more everyday goods are now financed by a loan. As a result of this trend among consumers, more and more types of credit have also emerged.
Overdraft facility: Flexible repayment but high interest
One of the best known loans is the overdraft facility, also called overdraft facility. It is the case with the overdraft facility that it is not automatically included when opening an account, but it is only offered that you have an overdraft facility available. The standard way is like any other loan that it otherwise has to be applied for. With a credit facility there are also prerequisites for the application, so the borrower must have a certain credit rating, which means that the bank requires regular income so that the credit facility can be used.
The overdraft facility is a framework credit, which means that a certain amount can be used. This sum is usually three times the net income. The overdraft facility is a special form of repayment, because there is no fixed time at which the repayment must be made. However, you should only use the overdraft facility for short-term financing, because the interest is usually very high and can be as high as 14 percent. However, the overdraft facility can be repaid at any time and you can also repay the entire amount at once.
Installment loan: consistency and planning security
One type of loan that has become very well established and that is also used very often is the installment loan. This is applied for to buy most consumer goods such as a car. If the installment loan is used to finance the loan, the bank issues a fixed sum to the borrower at a fixed interest rate. Already at the conclusion of the contract, a lot is determined for the installment loan, including the duration and all modalities of the installments, ie the amount and number, as well as the fees incurred for the loan. The repayment installments for the installment loan are made up of part interest and the other part loan repayment. With the installment loan you have an effective annual interest rate. This interest includes the total cost of the loan, including the fees. The APR tells you how “expensive”.
Other types of installment loans: prepayment business and mortgage loan
There are other types of installment loans that are worth mentioning. First, a repayment transaction and second, the mortgage loan. In the payment transaction for a television, for example, no money is granted, but the goods themselves, which you can take with you and then pay off in the following period. The formalities are very limited, but it can be that you have a very long term and therefore pay off the consumer goods for a long time.
In the case of a mortgage loan, the installment loan is secured through a mortgage. This has the consequence that as a borrower you can show good security that you can get a low-interest loan. For example, real estate transactions are financed. One can differentiate again with the mortgage loan, namely either the loan is tied to a specific purpose, so that, for example, certain value-enhancing renovations have to be carried out on a property, or the mortgage loan is purposeless, then whatever the borrower wishes can be financed.