explanation of Terms
A full repayment loan offers an attractive opportunity especially for those borrowers who want to repay their loan more quickly. If the interest rate is currently low, these favorable conditions can be used for faster repayments. The full repayment loan is similar to the annuity loan: the borrower pays a constant rate every month. This is made up of the borrowing rate on the one hand and the repayment component on the other. In contrast to the annuity loan, the borrower does not specify the annual repayment rate with this form of financing, but rather determines the period after which he wants to be completely debt-free again. The bank uses this specification from the borrower to calculate the repayment portion. The borrower must then repay his loan in full within this specified time. As a rule of thumb, the following can be mentioned: the shorter the borrower chooses his term, the higher the required repayment portion.
The advantage lies in the fact that it is easier to calculate, which the banks reward accordingly with attractive interest rates. This model is even more attractive given the currently persistent low interest rate (as of 04/2011). Although the borrower has to cope with a high repayment component each month, the interest and repayment charges are only slightly higher than would be the case for the long-term average for annuity loans with a 1 percent repayment. The repayment rate of the loan is thus adjusted to the desired term, whereby interest rates can be fixed from 10 years. Car loans are particularly suitable for total terms between 15 and 25 years, within which there is also an interest rate fixation.
If the fixed interest rate for a loan is to be 20 years, the monthly installment or the respective repayment is calculated in such a way that the corresponding loan term is 20 years. If a term of 15 years were chosen, a higher repayment would then be required, because the loan must be paid off after 15 years. Thanks to the interest savings due to the currently low interest rate level, the borrower has the advantage of increasing the repayment rate accordingly while maintaining the monthly installments. This means that the loan term and the duration of the fixed interest period are always congruent.
However, the full repayment loan has a small disadvantage: Since most banks grant an interest discount with this financing option, they exclude additional special repayments. However, this does not apply to the special right of termination under the German Civil Code, which remains unaffected. Car loans are therefore very clear, since only a few financial products are required for this. Even if the loan can only be repaid on schedule, the borrower can exercise the statutory right of termination after ten years (time limit: 6 months). This right must also not be excluded by corresponding clauses in the loan contracts.
Full repayment calculator
You can quickly and easily determine how high the monthly charge for a full repayment loan is with our full repayment calculator:
Our tip for a Car loan
Anyone who chooses this financing model should specifically ask their bank or construction money broker for a full-time loan. It should also be noted that a Car loan is also extremely interesting for follow-up financing!
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If you want to secure low interest rates for your follow-up financing now, you can request a free financing offer from our partner, Interhyp AG.
Advantages and disadvantages of a full repayment loan
In addition to the interest rebates, the advantages of the Car loan also lie in the absolute interest rate security. At the same time, there is no risk of an interest rate hike after the rate lock expires, since the borrower no longer has any remaining debt. The disadvantage of a full repayment loan, however, is its inflexibility, since it is almost never possible to reduce the repayment rate within the interest rate chosen by the borrower. The same applies to special repayments, which are usually excluded by the banks. This is precisely why full repayment loans are interesting for all those in whom special repayments do not play a major role, but who want a fixed rate over the entire loan term.
The main advantage of this financing option is, however. That the borrower receives a fixed interest rate over the entire term of his loan and is therefore not exposed to any interest rate risk. The borrower can also precisely calculate the cost of the entire construction financing. Not only is the entire term of the loan fixed, the borrower also knows at the end of the term that the loan has been repaid in full. The costs of this form of financing are also correspondingly low, as compared to combination packages such as loans and insurance or loans and home loan contracts, there are only minor fees and commission payments. And the borrower is not exposed to dangerous pre-financing or interim financing.
Real alternatives to full repayment loans are so-called constant loans. With this financing model, too, the borrower has a constant monthly rate until the loan is repaid in full. Car loans are not only suitable for the purchase of real estate, but also for building a house or rescheduling. In order to find out the corresponding monthly burden of interest and repayments, there are useful tools on the Internet for calculating construction finance. With these financial calculators, you can easily calculate the monthly charge based on a repayment plan. The whole offers the opportunity to determine the timing of the financing yourself.
The financing variant “full repayment loan” offers the borrower a much greater degree of transparency, but in reverse also binds him accordingly to his credit institution, because the point in time until which the complete repayment has to be made must be adhered to exactly. The borrower therefore has neither the possibility to shorten or extend the loan nor to suspend repayments or make special repayments. It is therefore extremely important to check the structure of the loan contract in advance so that it can be maintained in the long term. In many cases, the initial repayment is 3 percent, which is usually a matter for high-income builders with a high credit rating. In return, the borrower always receives consistently high rates for the entire term.
Accordingly, this naturally has the disadvantage that it is no longer possible for the borrower to make a favorable debt rescheduling later on. These costs that may arise as a result must of course be offset against the advantages. On the other hand, with the full repayment loan, the financing costs for a property can almost always be reduced. If you are not sure that you can make such high repayments in the long term, you should switch to long-term annuity loans as an alternative, because there is a significantly lower monthly charge.
Car loans thus offer an ideal opportunity for real estate financiers or debtors to repay their loans, especially during the current low-interest phase. Whole bank loans are also often offered by the banks under the “constant loan” financing variant, but this differs significantly from the constant loans of the building societies! Because the latter almost always offer their contracts from a combination of different loan variants and in connection with a savings contract. With a full-time loan, there is neither a savings phase nor is this form of financing linked to other links with different types of loan.
Therefore, full repayment loans are not only easier to understand, they also offer the borrower a clear cost structure. The borrower is therefore exempt from all further considerations such as “forward loan”, “higher interest rates” or “follow-up financing” etc. Because there is neither an expiry of the borrowing rate, nor an expiration of the fixed interest rate, nor is there a renegotiation regarding follow-up financing. The Car or Schnelltilger loan gives builders and property buyers absolute calculation security. Those who rely on flexibility can fully or partially repay their full repayment loan after a ten-year term with a period of six months.
If you want to pay off your loan within a period of 20 years as of today (04/2011), you currently need a repayment of 3.2 percent, for 15 years it is even 4.8 percent. If you want to shoulder the whole thing over 10 years, that’s even 8 percent! A high rate burden that should not be underestimated! However, the interest may not be changed until the repayment is complete, even if the general interest level should rise again. Accordingly, the credit institutions also critically examine the applicant’s assets and income situation.