Compare All Purpose Loan

A loan is used to provide money. There is the lender, mostly a bank or savings bank, and a borrower who needs the money. A contract is concluded in which a sum for the payment,

A loan is used to provide money. There is the lender, mostly a bank or savings bank, and a borrower who needs the money. A contract is concluded in which a sum for the payment, the interest and the repayment modalities are recorded. The borrower gets the money immediately. In return, he undertakes to repay the amount paid plus the interest.

There are different types of loans. Very well known are the real estate loan and the credit line. But what makes the general purpose loan so special? A hint is included in the word. The general purpose loan, often referred to as a personal loan, is not earmarked. It can be used for “all purposes”. The purpose of use must therefore be demonstrated neither at the time of admission, nor after the payment or otherwise at any time.

In the world of finance, loans and credits, this is definitely something special, as with other types of credit, such as the real estate loan mentioned above, it must be precisely demonstrated and proven what the money is used for. Also, company owners or legal entities usually have to clarify what the financing is needed for.

In exceptional cases, a bank may refrain from such evidence. For example, to shorten the processing time or if it is a particularly important, long-standing customer.

The general purpose loan is the most flexible fixed loan and has, in contrast to a credit line, a significantly lower interest rate. It can be used, for example, to finance a holiday trip, a new car or even the repayment of one’s own credit line. That’s what makes the multi-purpose loan so useful and interesting!

How exactly does the general purpose loan work?

Now to the exciting details! There is the all-purpose loan in different forms and variations. It is possible to make an application to his bank, through an intermediary or over the internet. Banks and savings banks now often offer an online version of their general purpose loan. That saves time. Not only many customers find this outstanding.

The banks are also very interested in providing standardized and fast lending in order to save costs. Here, everyone has to decide for themselves whether the personal contact is preferred or not.

It may happen that the lending requirement for the online loan options are somewhat stricter than for a telephone or personal loan. In addition, the online variants often require the customer to set up a household bill, ie a comparison of the income and expenditure. He must then enter this information in an online form. This can be an advantage, bearing in mind that you do not have to make an appointment first.

In addition, this is quite comfortable from home. If necessary, the credit decision is made earlier, as the bank has the decision-relevant data earlier. Especially in the online segment, as already mentioned, standardized processes are often used. However, so a credit cancellation is decided faster than a personal appointment.

What should one show?

Generally speaking, regardless of the type of application, a general purpose loan can be processed faster by the bank than a complex real estate financing. Often, the last three pay slips and the indefinite employment contract are sufficient to allow successful lending. In a personal conversation with the consultant questions from both sides can be clarified quickly.

As a rule, after the customer’s consent, a private credit statement will be obtained. Due to the standardization, the desired amount of money is often after the first call on the personal checking account.

Modalities for general purpose loans

The maximum limit of a general purpose loan is usually 35,000 euros. Sometimes less, sometimes more. The reason is that a general purpose loan is limited by the maximum repayment term. The longest maturities are 72 or 84 months. During this time, the entire loan amount, plus interest, must be repaid. Nevertheless, the demand for a general-purpose loan of eg € 150,000 would certainly not be particularly great, since the repayment burden on the borrower is too high.

In addition, the flexibility and simplicity of the general-purpose loan comes at a price that translates into higher interest rates. For example, financing a property through a general purpose loan makes no sense, since interest rates are usually much higher than a real estate loan.

Once the loan has been paid out, the money can be disposed of. Do you buy a new car or do you prefer to set up your own apartment? Theoretically, the borrower could only now decide what he wants to do with the money. The decision to take a general purpose loan but should always have a hand ! Because by the end of the month after next month, a rate is due, which remains the same for the entire repayment term.

With a general purpose loan, additional products such as insurance are also gladly offered. These may not be mandatory, but are in some cases not uninteresting. For example, long-term illness, death, inability to work and unemployment can be covered.

The insurance covers in case of cases and takes over the credit for the whole
Remaining time or until the borrower is well again or has found a new job.

A summary example

Maximilian “Maxi” Mustermann would like to buy his own sailboat. He has already looked around and an object in the eye. He has already spoken to the seller. Since Maxi already saves his life for this dream of own sailing boat, already a proud sum has accumulated. Unfortunately, he still lacks 18,000 euros to his luck.

He arranges a personal appointment with his adviser at his house bank. He asks him to bring his employment contract and the last three pay slips. Two days later, unfortunately, there was no free appointment, Maxi and his advisor sit together. Since Maxi earns well, the rate over 292 euros for the next 72 months is no problem. With the APR of 4.95%, he also agrees, as it is significantly lower than his Dispozinssatz.

Due to the long repayment period, Maxi wants to protect himself in case he falls ill and accepts the offer for a credit protection insurance. This costs him altogether 1500 euros, but the amount is simply co-financed. Instead of 18,000 euros, it now finances 19,500 euros. The slightly higher rate of 317 euros Maxi can still cope with. At least he is now secured.

Mr. Berater would like to have a signature from Maxi, for a private credit statement. It states that he had already taken out financing two years ago. This old loan has been successfully repaid. Mr. Advisor prepares the contracts and goes through them with Maxi. At the end, Maxi signs and says goodbye.

The next morning he sees in his online banking portal that the money has already been credited to his checking account and enthusiastically calls the seller of the sailboat to inform him that he will transfer the money now.

As a rule, the use of money is referred to as credit. In this case, a certain amount of money is borrowed, which is repaid in subsequent installments including interest again. The exact agreement is governed by the loan agreement. A loan agreement is concluded between the lender and the borrower. The lender is normally a bank, but a so-called private loan, ie the capital of a private person, who sees the loan as an investment form, can be used.

The borrower is usually a private individual who needs a certain amount of money to make a purchase. However, borrowers can not only be private individuals but also companies.

What is a general purpose loan?

Important is the purpose of the loan, so what it is for. This must normally be stated in the loan application. Loans can be used, for example, for a car, furniture, a renovation or for the balance of the current account. The special thing about the so-called general purpose loan is that when taking out the loan no special purpose must be specified, the credit is therefore for free use. The loan can also be called instant or personal loan.

In order to receive a general purpose loan, certain conditions must be met. As a rule, a loan is only granted if the borrower has a regular income or can deposit collateral such as valuables, shares, land or real estate. If a loan with indefinite use is to be included, there are a few things to keep in mind.

The borrower usually knows, of course, what he needs the capital for. Therefore, the amount of the general-purpose loan should also be estimated so that no unnecessary sums of money are taken as debts, since the loan bears interest at a certain rate.

The term is also a factor when taking out a loan, on which should be respected. Basically, the longer the term, the more expensive the loan. Therefore, as a borrower, you should divide your own money so that the loan is paid off as soon as possible and you are therefore debt free again, to save costs.

The interest rate of the loan varies depending on the bank, loan amount and term. When it comes to general purpose credit, it makes sense to compare interest rates on loans from various banks in order to choose the optimal loan for your own needs.

Repayment at the general purpose loan

The monthly installment for the repayment of the general purpose loan consists of the loan amount and the term. Each installment contains a certain percentage that pays the outstanding interest. Thus, the general purpose loan is settled after payment of the last installment.

Although many banks may offer higher interest rates for a loan, but you should not always be scared of it. Also on additional options and freedoms, which are given with the loan agreement, you should pay attention when comparing loans. Very beneficial for many borrowers is the installment break, which is offered by certain banks.

One or more monthly installments will be canceled if they can not be raised by the borrower in the respective month. The missing amount will be split between the outstanding installments.

Further example calculation

To illustrate the whole, here’s another example. Mr Müller wants to refurnish his living room and therefore accepts a loan of € 5,000, a term of one year and an effective interest rate of 5%. The monthly rate would be € 437.50 for a 12-month term. Thus, in the end, € 5,250.00 have been repaid and the bank has earned € 250.00 with this loan.

distinction between

There are a variety of different loans in the financial industry. For example, the loans are differentiated according to maturity, collateral, type of interest rate (fixed or variable) and the reason why a loan is taken out. Among other things, there is the hypothecary loan for house financing, the home savings loan for residential purposes, the car loan for the new car, the disposition credit for more flexible account management.

But which credit fulfills the wishes and purchases for which there is no earmarked loan ? This is where the all-purpose loan comes in, which is offered by all banks. And as the name implies – the recorded sum is at your free disposal. Whether vacation, home furnishings or the financing of the wedding – the possibilities are almost limitless. Even if the advice session asks what the loan is to be taken on, it is usually not checked by the crediting bank.

Requirements for borrowing

Legal requirement for borrowing is creditworthiness. A loan may only be granted to adult customers who are not under care and who are not subject to a reservation of consent in asset matters. Minors require parental consent and family court approval. This is the case with any type of loan, not just a general purpose loan. Decisive for the approval of the loan by the bank is the personal creditworthiness of the customer.

Since the general-purpose loan is usually provided blankly, ie without valuable security such as land charges or the pledging of savings, the bank checks the economic performance of the borrower. First, the customer’s private credit data is checked. Negative entries, such as open balances, affidavits or account cancellations, are the end of this and lead to a rejection of the general purpose loan. Ongoing financing and leases, which are served on time, are not bad.

additional conditions

The bank can deduce from this that the customer pays his installments on time. Another condition for the customer is the credit of regular income, such as wages, salary or pension. Based on these inputs, the consultant prepares a household bill. This is a comparison of the customer’s income and expenses. Fixed costs such as rent, ancillary costs, leasing installments and insurance premiums are added to the cost of living. As the cost of living varies from month to month, banks work here with fixed lump sums.

Decisive here is the amount of the monthly income and the number of persons living in the household of the borrower. If, after deducting all expenses, there is still enough left over from the income to set a monthly loan installment, the bank is ready to meet the loan request. However, one should be able to repay the general purpose loan in a realistic time. Usually the longest term is 10 years.

The interest rate is fixed for the entire term and depends on the loan amount, term and creditworthiness of the customer. In order to be able to compare offers from different banks, one should above all compare the effective interest rate with each other. In contrast to the bound borrowing rate, it includes all the costs that the general purpose loan entails. Also, a look at the reported total costs (loan amount, buzzer of interest, other costs) can help.

This is often where credit protection insurance, which the banks like to sell, hides. To a serious advice this does not necessarily belong, but a reference to the legal right of withdrawal of 14 days and the notice right according to consumer credit law.

When is a general purpose loan worthwhile?

Calculated, a general purpose loan pays off if other obligations are combined to pay a lower monthly installment to keep the customer alive. A compensation of overdrawn current accounts is also sensible, since the interest rates for overdraft loans far exceed those of general-purpose loans. With a fixed monthly rate, it usually works better to reduce the overdraft. And sometimes it makes more sense to finance an acquisition immediately instead of saving it on a long-term basis.