Feeling overwhelmed during credit negotiations? Don't let yourself be pressured and take a look at our tips before concluding any agreements.
Determining Monthly Affordability
Initially, it is important to consider the monthly credit rate one can afford. It is advisable not to calculate too tightly, in order to have some extra funds available for unforeseen expenses. Possible income losses should also be taken into account. In the case of variable interest rates, note that a higher rate would result in a higher monthly credit burden. Sufficient financial cushion should also be available for this purpose.
Obtaining Multiple Offers
Acquire multiple offers to make a comparison. It is important to compare the effective interest rate and the total amount to be paid (previously known as "total cost"). The effective annual interest rate also takes into account bank fees and expenses. Caution: Some institutions may charge monthly fees in addition to the nominal interest rate. Do not immediately accept the first credit offer. Read the contract thoroughly - including the fine print.
Comparing One-time Costs
Also compare the one-time costs incurred (processing fees, collection expenses) - these can significantly increase the cost of the loan.
Negotiating interest rates and margin
When negotiating a loan, be sure to negotiate the interest rate, particularly the markup (margin) that the bank earns, which is added to the bank's refinancing costs (examples include EURIBOR, secondary market yield, or Euro interest rate swap). Refinancing costs are the costs the bank incurs to "buy" the money it needs.
Emphasizing creditworthiness
The better your creditworthiness (credit rating), the more favorable interest rates and processing fees should be.
Taking advantage of low interest rate periods
Low interest rate periods can be used for fixed interest rate agreements. Note: the longer the fixed interest rate period, the greater the difference from variable interest rates. Fixed interest rates are often only offered in the mortgage loan sector; maturities of 1 - 10 years.
What to consider with fixed interest rate offers?
You can either make a fixed interest rate agreement for the entire term of the loan or only for a certain period of time. If the fixed interest period is shorter than the loan term, you should already agree on the interest rate adjustment clause and the bank markup (= margin) for afterwards when signing the contract. In addition, we recommend that you consider the following points when making fixed interest rate agreements:
Banks usually charge higher interest rates for fixed interest rate loans than for variable interest rate loans.
The longer the fixed interest rate period, the more banks charge for the interest rate guarantee.
When concluding a fixed interest rate agreement, keep in mind that early repayment during the fixed interest period may be associated with fees (prepayment penalty).
Comparing required collateral
Please compare the required collateral. Taking out insurance (credit life insurance, death insurance) is common, but there are also large differences in premiums. Therefore, also compare offers from other insurance institutions. It is possible that an existing insurance contract can be offered to the bank. Important: If the conclusion of such insurance protection is a prerequisite for the granting of the loan, the consideration of the premium(s) in the effective interest rate is mandatory.
Note: Some banks offer their customers very comprehensive insurance packages - including disability, unemployment, illness, and death benefits. Complaints in AK consultation show that these often very expensive packages were not explained sufficiently or even simply "sold along".
Insist on standard information & repayment plan. Banks have extensive pre-contractual information obligations, which are included in the "European Standard Information for Consumer Credit Agreements" form. Insist on receiving this form as well as a repayment plan.
What about special repayments or payment delays? Also have the conditions for special repayments, early repayments, contract changes, as well as the consequences of delayed payments explained to you.
Right of withdrawal: Within 14 days, it is possible to withdraw from an already concluded credit agreement. However, this does not apply to mortgage loans.
Be careful with credit intermediaries. The personal loan intermediary may charge a maximum of five percent of the contractually agreed loan amount (excluding interest) for the mediation. The broker may not demand any other incidental expenses for copies or processing fees.
Tip: Our bank calculator calculates exemplary conditions for
consumer loans.
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