The terms of a loan ultimately determine how much the additional costs that the borrower has to repay to the lending bank or savings bank in addition to the borrowed capital. Different factors can affect the amount of the interest and also the additional costs – for example, interest rates that are independent of creditworthiness are possible, as well as interest rates that are directly related to the creditworthiness of the borrower.
Interest of the loan is base on what?
If the interest on a loan is not based on the creditworthiness of the borrower, it is based on the loan amount or the associated term – only rarely can loan interest be found that is actually fixed, at least as far as consumer loans from normal banks are concerned. An example of this would currently be the DKB, the Deutsche Kreditbank: it offers a fixed debit interest rate of 5.79% pa, the effective annual interest rate is 5.95%.
It’s hard to say which bank actually offers favorable terms, but you can make such a comparison using an example calculation. In a comparison, criteria such as the acceptance rate or, in the case of credit brokering, the placement rate should also be included, because good conditions are of little use to a potential borrower if he does not receive a loan approval.
A common prejudice is that interest rates on loans without Credit Bureau are higher because the banks have to accept a higher risk, but this is not correct. What makes these loans more expensive are the fees, if any, that are incurred when brokering a loan, since it is difficult to bypass the brokerage and to contact one of these Swiss banks directly.
Terms of the loan
Of course, the terms of a loan also include the type of repayment and other framework conditions, such as fixed interest rates. With long-term loans, it makes sense to fix interest rates as long as possible, provided they are at a low level. However, it should be noted that it can be expensive to terminate the loan – if the borrower wants to cancel within the fixed interest period.