Dedicated loans can be used to finance real estate or cars, for example. But you will also often find the “free use” purpose. The borrower decides whether or not to indicate the purpose of the loan . However, it should be borne in mind that specifying the intended use can lead to a low interest rate. The purpose of the bank loan may also serve as security. In this article, you will find out which type of financing you should use for your project.
If you specify the purpose of the loan, you may be able to count on a low interest rate and thus save money. The intended use can influence the likely repayment or the default. The more the banks learn about the requirements, the better they can assess the default risk. Anyone who uses a credit comparison on the Internet should also state the purpose of the financing. Only earmarked loans are then displayed.
Building finance is always earmarked. This type of financing is used to finance the construction or purchase of a property. The annuity loan ensures constant monthly installments. It should be noted that initially the interest is the main part of the rate. Due to the constant installments, the repayment share increases every month. The financing has a fixed interest rate and the fixed interest rate will not increase the rates during the term. The property that was financed serves as security for the bank. If the borrower can no longer pay the installments, the bank will auction the property.
If you decide to finance your car for a special car loan, you take out a special installment loan. Similar to the property, the car remains with the lender as security until the installments are paid. If the car is financed through a dealer’s house bank, only the purchase price can be included. With a car loan from the bank, the loan amount can be increased, for example to buy additional products for the car. If the installments can no longer be paid, the bank will auction the car to compensate for the loan amount.
Anyone who decides and takes out a modernization loan should definitely state the purpose. Modernization can increase the value of a property. It is particularly important if you give your property as security. The increase in value means that the default risk for banks is very low, which in turn has a positive effect on your loan approval and your interest payment.
If you are planning a debt rescheduling because either the monthly charge is too high or if you have found a loan offer that shows a better interest rate, the purpose should be stated. All liabilities are then combined into one loan. The monthly installments are adjusted to the current financial situation. In general, debt rescheduling should only be carried out when savings are due. The intended use is therefore sensible, since the monthly payments decrease due to the debt rescheduling. This creates more financial scope for you and increases the loan commitment.
Anyone planning to take out a loan is faced with the decision to specify a purpose or not. Your own financial position should be taken into account. If you can prove a regular and high income, you can expect a low interest rate anyway. This does not necessarily mean the purpose of the loan. But if there is a poor credit rating, it looks different. It may well be that the intended use ensures that the loan is approved. If necessary, the intended use can be viewed as security.
Banks require certain conditions from the borrower. This includes a regular and sufficient income, usually above the garnishment exemption limit. The bank checks not only the income, but also the credit record.If it turns out that the credit record is negative, a loan can often only be approved if a solvent guarantor can be presented. A German residence and an account are also important. The bank may also ask about loan collateral. This can be a property or a loan that can be lendable. Whoever decides on a purpose for the loan should know that the banks check whether the money is actually spent for the stated purpose. Because the object that you are financed with it serves as security for the bank. This reduces the risk for the bank, which is seen as an advantage for the customer. Because the interest rate drops and the burden becomes less.
Anyone looking for a loan has to meet various requirements. However, if the borrower cannot fully meet them, the intended use of the loan can be advantageous. It is crucial why the loan is needed. If, for example, a car is bought from the loan, the vehicle can serve as security for the bank. This increases the borrower’s credit rating, and interest rates fall. This can also result in a lower rate. If a loan application is rejected despite the intended use, you still have the option of a loan without credit record.