If you are considering taking out a loan for your personal loan purpose, it is wise to consider a number of things. For a longer period of time, take out a loan, because it is not only advisable to look at favourable terms of the loan, but also to think carefully about how you will afford to pay the loan over time.
Here we will give a number of tips that you can use when you take out a loan .
- Look beyond your own bank
Almost everyone in the Netherlands has a checking account with one of the major banks (ABN Amro, Rabobank , ING , SNS). They have been customers there for many years and when it comes to taking out a financial product, many Dutch people turn to their own ‘house bank’.
Understandable. You are already a customer there, they know you and placing all your financial affairs under the same organization is so clear. But do realize that this choice comes at a price. When it comes to consumer loans, the major banks are not always the most advantageous providers.
For example, if you compare the interest rates of the major banks with the rates of parties that offer credit via the Internet or via an intermediary, this can make a difference by several percent. Set that interest rate difference against the entire term, then the total costs (the amount that you repay in total including interest) can in certain cases be thousands of euros higher when you borrow money from your ‘house bank’.
In addition to the level of the interest, this difference also depends on the loan amount and the monthly charge of the loan. Therefore, always request multiple quotes from different providers and compare the total costs of the different offers.
- Choose the monthly payment that suits you and your loan purpose
The monthly payment is the amount that you pay monthly to the provider of your loan and consists of a piece of interest and a piece of repayment. At first glance, the lowest monthly payment may sound attractive, but you realize the lower the monthly payment, the longer the term of the loan will be.
A longer term will entail a higher amount that you will pay in interest over that term. On the other hand, you pay off faster with a higher monthly payment and pay a lower total amount of interest during the term. However, a high monthly charge must fit into your monthly budget.
If you choose a monthly charge that is too high, then you run the risk that you will eventually run into problems with the payment of your monthly costs. A monthly payment that fits your budget and that entails an acceptable term of the loan.
3.You take out your loan with a goal.
This goal usually has a ‘limited shelf life’, also known as an economic life. It is therefore best to adjust the term of your loan to this lifespan. After all, it would not be desirable if you still have to pay off your loan when what you bought with the loan has already been written off.
A textbook example of this is the purchase of a new car . It is therefore wise to choose a car loan with a term of 5 years. If the corresponding monthly charge does not fit into your budget, see whether you can make concessions in your loan goal, such as the purchase of a smaller car or less luxurious kitchen.
Another thing to consider when choosing the term is future events that affect your financial situation. Consider, for example, having children or reaching retirement age. In these cases you will have to deal with higher monthly costs or a decrease in your income.
Should such (or other similar events) occur in the near future, it is prudent to take this into account with regard to the term of the loan and thus set the maturity date of the loan on or before the foreseeable event affecting is on your finances.
- Choose the loan form that matches your wishes and loan purpose
On the one hand a revolving credit , on the other hand a personal loan. Which form is best for you depends on your spending goal and your personal preferences. Due to its flexibility, a revolving credit has no fixed term.
A revolving credit can be a good loan form if you want to make a number of large expenses during a certain period. You can then always withdraw the required money from the credit. Only when you make a withdrawal do you pay interest on the money withdrawn.
A personal loan has less flexibility. Both the interest and the term are fixed and (re) withdrawals of the loan are not possible. In contrast to a revolving credit, with a personal loan, you know exactly what you will pay back in total at the start of the loan. Because you have a fixed term, you can properly match it to the useful life of what you are going to buy with the loan, for example a car.