If large loan amounts are needed, loans with a long term are recommended. Although these are more expensive in the end, they can be operated with rates that still leave you enough space in the monthly budget.
Differences also arise with regard to the collateralization of the loan. The longer the contract runs, the higher the risk of a loan default. Long-term loans therefore require conscientious planning, which should, of course, be accompanied by appropriate supply comparisons.
General information about long-term loans
When generally speaking about a long term, depends primarily on the type of credit. In the case of a consumer loan, a term of more than five years may already be considered as long, while the same term in relation to a real estate loan would rather be classified as short. Depending on whether the loan offer is based on short-, medium- or long-term repayment periods, the costs may vary accordingly.
Especially real estate loans often have maturities that can extend over several decades. This also depends on how many percent of the investment costs were financed through borrowed capital and how high the corresponding equity interest is.
Another important point to keep in mind is the fixing of the interest rate. Especially with a long-term loan, it is particularly important to be able to plan the upcoming expenses as precisely as possible in the monthly budget. That is also the reason why most long-term credit agreements are annuity loans, where the monthly rate remains constant. Only the composition of interest and repayment shares vary from month to month.
Currently also calculated: Credit with 120 months duration
Collateral and insurance for long-term loans
In addition to the usual collateral, which above all requires a regular income from employment with indefinite duration, additional long-term loans are often expected from you. In general, banks recommend the conclusion of a residual debt insurance, if not immediately made a prerequisite. A residual debt or credit insurance is basically nothing more than a term life insurance with continuously decreasing contributions. Falling contributions because the sum insured always adapts to the decreasing residual debt.
For real estate loans and car loans, the financed objects themselves serve as additional security. For example, financing a house often involves registering a mortgage or mortgage in the land register. In the case of a car finance, the registration certificate Part II (formerly known as a car letter) is kept by the bank until the loan is fully repaid. In both cases, the bank therefore reserves the right to be able to satisfy its claims under the financed object, should the loan amount not be repaid in accordance with the contract or should the loan even be canceled altogether.