Many people actually need a loan. But they are afraid of the high rates. Those could become too much of a burden, they are frightened. One solution is a loan in small installments. However, you must be careful: this strategy has some disadvantages. Moreover, not every bank understands the same thing under this name.
Loan in small installments: who pays?
Anyone who is interested in a loan in small installments usually wants to pay only a few monthly payments. However, there are also banks that offer loans in installments. A classic example is education loan. This is paid in up to 36 installments. The monthly installments can only cover a few hundred euros. Therefore: If a loan or loan is offered in small installments, first look at the details.
Loan in small installments: Crucial are the term and the loan amount
Basically, the amount of loan installments depends on two factors:
- Amount of the loan amount
- Length of the repayment term
The amount of the loan amount is a very simple logic. The lower the credit, the lower the rates can be. You can, for example, pay off a € 3000 loan with monthly installments of less than € 100. At runtime, you usually have the choice of twelve to 84 months. The longer the runtime, the lower the rates. If you are looking for a low-rate loan, extending the term is the best strategy.
Loan in small installments: the disadvantage of long terms
Banks usually find it excellent if you choose a long term. This fact alone should make you skeptical. Too long runtimes have two disadvantages:
- You pay longer interest. The total debt will be higher
- The interest rates for longer maturities are higher than for shorter ones. This also increases the total debt
Both disadvantages lead to slightly higher rates. However, the longer the runtime is chosen, the more it gets worse. For example, for loans with a maturity of 120 months, the rates are almost as high as for 72-month loans. You should therefore find a healthy measure.
Loan in small installments via a second borrower
You can also lower loan rates with a second borrower. They simply share the respective rate. For example, everyone pays 50 percent. This strategy is very popular with large loan amounts. Real estate financing, for example, is handled by banks through two borrowers. This ensures that the rates are economically viable for both. By the way, the second borrower also helps with the interest. Your credit repayment capacity is strengthened. After all, you are two. You get a better interest rate. The installments sink.
Credit with small installments: The “balloon” – or final financing
There is another strategy on how to get a loan with small installments. It is common in both real estate and vehicle financing. One speaks of a “balloon” – or follow-up financing.
They take a big loan here. Over the normal term, you pay only about half of the total. The rates are correspondingly small. In the end, you can redeem the loan either through a one-time payment. Or you take on follow-up financing. In this way you can keep interest rates stable. However, you pay very long interest.