If you want to compare multiple loan offers, you should know how the cost of a loan is composed:
The annual percentage rate is the most important indicator to estimate the cost of a loan. With it, the borrower can conclude the contract calculate the amount that he has to repay in total. In this way you can also compare loan offers. It is always stated as a percentage of the payout. For example, the interest rate referred to by the banks as the annual interest rate is actually the effective monthly interest rate. So there is a new monthly netting and calculation. Since the compound interest effect occurs after the first month, the effective interest rate is always higher than the original interest rate.
The effective interest rate includes:
- nominal interest rate
- payout ratio
- fixed interest rate period
nominal interest rate
The nominal interest rate is based on the borrowing rate and is included in the calculation of the effective annual interest rate. It only indicates the amount of the loan interest. By itself, it is only moderately meaningful. Therefore, borrowers should never look at the nominal rate, as it only allows a rough estimate of the true cost.
Processing fees for consumer credit are no longer allowed under current case law. The Federal Court of Justice ruled in 2013 that the processing of a loan application is not a service to the customer. On the contrary, the careful consideration of an application is in the interest of the lender. If a bank continues to charge processing fees, caution is advised. Banks from abroad are of course not affected by this judgment. This may incur fees for the examination of the application and the creditworthiness of the borrower.
Reimbursement or premature repayment may result in renewed fees. Anyone planning to redeem their loan early should pay particular attention to this point.