If you want to borrow money, you can’t avoid paying interest. They are the remuneration that has to be paid for the temporary lending of capital. The amount of loan interest depends on various factors. Find out here how you, as a borrower, can get cheap loan interest.
How to find cheap lending rates
Before taking out a loan, you should compare various loan offers in detail. This is the only way you can get an overview and find the best possible offer.
The easiest way to compare is through our loan calculator. Here you can compare loan offers free of charge and without obligation and contact the provider of your choice to obtain further information or even to take out the loan directly online.
When comparing, it is, of course, important to look at the interest, because this is the only way to find out how much the loan will ultimately cost you. You are usually shown two interest rates: the borrowing rate and the annual percentage rate.
- The borrowing rate is the interest a borrower pays on a loan to the bank.
- In addition to the borrowing rate, the effective interest rate also includes other factors such as term or processing fees. Since banks charge different amounts here, interest rates differ from bank to bank.
Why you should compare the effective interest rate
If you compare different loan offers with each other, you should only use the effective interest rate, since this includes all additional costs. In addition to the borrowing rate, it also includes price-determining factors such as processing fees or the agency commission. It, therefore, includes all costs that are actually incurred for a loan and specifies these as a percentage of the loan amount.
Interest rate comparison is a representative example
Note that the percentage given in the comparison does not necessarily have to correspond to the interest rate you receive on the loan.
Rather, they are presented with an average value that corresponds to the interest rate that approximately two-thirds of the borrowers receive. Using these values, a sample calculation can be created that shows the average loan costs.
Low-wage earners, in particular, can expect the interest rate to be calculated much higher for you. The bank can pay the default risk accordingly expensive by setting interest rates higher.
If you want to know your actual interest rate, you must contact the bank directly. Based on your personal information, this will then create an individual offer. A large number of factors influence the conditions of your loan.
What loan interest rates depend on
When it comes to investment opportunities, customers are looking for the highest possible interest rate in order to get a return on their investment. The reverse is true when looking for a loan – the interest rate should be as low as possible to keep the costs of borrowing the money low. However, various factors are decisive for the amount of a loan, which you as a borrower can even influence in part yourself.
For example, it is important that you regularly check that your Credit Checker entries are correct. Anyone who has no entries in Credit Checker and therefore no current loans or unpaid telephone bills increases their chances of a cheap loan. Check out our Credit Improvement Guide.
In order to determine your loan interest precisely, the chosen bank will use various factors. These include, for example:
- The loan amount and term
There is a very simple rule here: the higher the loan amount, the higher the value that must be repaid. Because with a large sum, the bank takes on a higher risk that it can pay for accordingly.
In addition, the term determines the interest on the loan: the longer the loan is paid off, the higher the risk that the borrower will default during the term.
- Credit Checker information
When applying for a loan, the credit institution will obtain Credit Checker information about you. If unpaid loans or bills appear, this can have a negative impact on interest rates. It makes sense to check whether your Credit Checker entry is correct before you apply for a loan.
If you can present various types of collateral, such as stock values or savings, when you conclude the loan agreement, this has a positive effect on the loan interest.
If you would like to take out the loan for a specific purpose, such as buying a car or real estate financing, banks usually offer discounted conditions. The loan is then linked to the specific use and may only be used for this. The bank also uses the property acquired or the car as security.
- Income and employment
It is not necessarily how much you earn, but how much of this income is freely available. The bank will, therefore, take a close look at your income and expenditure and offer you a good interest rate if income and expenditure are in a favorable relationship to one another. A secure employment relationship also has a positive effect. For example, an official usually has better chances of getting low interest on loans than a freelance artist. In addition, other factors such as age or place of residence can play a role. Favorable loans are more likely to be given to younger people between the ages of 25 and 40 since the risk of death is lower here. If you live in an area where there is a lot of negative Credit Checker information, this can have an impact on the interest rate.