Modernization loan: modernize and renovate the house

What is a modernization loan?

What is a modernization loan?

A modernization loan is used by property owners who want to repair, modernize or renovate their house or condominium according to energy considerations. The modernization or refurbishment loan works like a free installment loan. With the difference that the funds are earmarked: You can only use them for the purpose of modernization. In return, the interest rates are significantly lower than those of a free installment loan.

Who is the modernization loan granted to?

Who is the modernization loan granted to?

Banks only grant the modernization loan to property owners, because the property acts as security here. A land register extract usually serves as proof of ownership.

It is not a requirement that your property has already been paid off! Even those who are still burdened by construction finance can take out a renovation loan, for example for the renewal of the electrical system. What counts is personal income.

What can I finance with the modernization loan?

A modernization loan usually finances measures that add value, i.e. those that increase the value of a property in the long term. This can be a bathroom renovation, for example. But even if you replace old windows, renew the roof or change the heating system or electrical system, you increase the value of your house.

According to the German Civil Code (BGB § 555b), “modernization” includes all energetic renovation work that increases energy efficiency sustainably or reduces water consumption permanently – and even extensions such as a winter garden or a carport.

Some banks even cover renovation measures that only preserve value. But the cost of new wallpaper, cosmetic repairs or the new painting can usually still be met from the current income. However, if you want to modernize a house, you usually have to dig a lot deeper and think about a loan.

Modernize the house: Typical modernization costs

The table shows typical modernization projects that are generally accepted by banks and how much you have to budget for them. Modernization loans usually start at $ 5,000 and end at $ 50,000.

  costs
New heating system $ 5,000 to $ 20,000
Roof renovation (including energy renovation) Detached house 15,000 to 25,000 dollars
Exchange of windows / doors (approx. $ 1,000 per window / door) Single family house (8 windows) from 8,000 $
Bathroom renovation from $ 12,000
Cultivation conservatory $ 5,000 to $ 15,000

Step by step: how do I get a modernization loan?

Step by step: how do I get a modernization loan?

The bureaucratic effort is low. Because unlike for a building loan, no land register entry is necessary for the modernization loan. This saves fees and notary fees and speeds up the loan approval process. A few days after the positive Credit Bureau information, the money is usually already flowing. In the following, we will explain how to proceed:

1. Prepare a rehabilitation plan

For your own security and for submission to the bank, it is advisable to determine the costs of the modernization project in advance as precisely as possible and to lay it down in a restructuring plan. Many banks only grant the loan on the basis of such a plan. This creates transparency for both sides and prevents later discussions as to whether the funds have been used appropriately.

2. Compare the terms of modernization loans

In any case, you should compare several offers for modernization loans. Because not only do the loan conditions of the banks differ from one another, but also your individual framework conditions.

In our installment loan comparison you can get an overview online and secure top interest rates and conditions quickly and without obligation. To do this, enter the loan amount, term and purpose and compare the loan providers and their conditions.

As a guideline: At the moment the interest rate should not exceed 3-4% per year. As always, the longer the term, the higher the interest. Maturities are offered from 12 to 120 months.

3. Agree additional services with the modernization loan

Once you have decided on an offer, submit an application to the bank – and arrange additional personal services. In this context, it is important to have a special repayment right: if you have extra capital unscheduled, for example through an inheritance or a salary bonus, you can use it to pay off the loan more quickly. For these additional payments, the bank should waive to a certain extent a “prepayment penalty”. These are fees of around 10% of the loan amount that many banks without special repayment rights charge as compensation for the lost loan interest.

You should also ensure that the modernization measure ends up being more expensive than expected. Talk to the bank about the possibility of realistic refinancing. This should not drastically worsen your interest rates!

4. Payment of the modernization loan and start of construction

Once the money is in your account, you can get started. Banks handle it differently whether you are required to provide proof of the type of funds used. Some banks want to prevent you from buying an XXL flat-screen TV from the money for bathroom renovation at a low interest rate. In this case, the craftsman’s bills are sufficient as proof. If you use your own workforce for the modernization, simply collect the proof of purchase of the required material.

What are the advantages and disadvantages of the modernization loan?

What are the advantages and disadvantages of the modernization loan?

If you want to modernize or renovate your home, you can usually finance it with a modernization loan. In the following table we summarize once again what and what might contradict it.

Advantages of the modernization loan

  • A modernization loan offers cheaper interest rates than a free installment loan
  • The application and processing is unbureaucratic
  • The loan does not require a land register entry
  • Debt relief is not a requirement
  • Short terms are possible

Disadvantages of the modernization loan

  • The loan is only available to property owners
  • The loan amount is earmarked and is max. $ 50,000
  • Interest is cheaper than a free installment loan, but not as cheap as a construction loan

What are the alternatives to the modernization loan?

What are the alternatives to the modernization loan?

The modernization costs of a property can also be financed with credit models other than a modernization loan. Here it is important to consider which model is the cheapest for your own project. Below we explain three alternatives:

A free installment loan can go beyond modernization

A consumer loan has no purpose limitation. In this respect, it can also be used for modernization. The interest rate (4 – 5%) is higher than for the modernization loan. You are not accountable to the bank for this and can finance the furniture for it with just one loan to the new conservatory. You can find current conditions with our loan calculator and the credit comparison.

The transition to the renovation loan is fluid

Some banks make no distinction between renovation and modernization measures. In reality, the transitions are often fluid anyway. If the renovation loan offers the better interest, grab it. In any case, you should clearly communicate your project to the bank from the start, so as not to violate any general terms and conditions later, if the roof renovation does not fall under “renovation”.

Building finance is suitable for major modernizations

The construction finance is used to finance a construction project, but can also be used for renovation. The main advantage is the extremely low interest rates (1 – 2%). Disadvantage: A land register entry is due. This increases the application effort and ensures longer waiting times until the loan is approved. A prerequisite for a building loan is often a high equity investment, which can amount to up to 40% of the loan amount. As a rule, construction finance is only worthwhile if financing requirements exceed $ 50,000. Find out more in our mortgage comparison and use our mortgage calculator simply as a modernization loan calculator to get offers directly.

Which financing model is right for me?

If you are not yet sure which type of loan best suits your situation, our table can help you. You can see at a glance all the options and conditions on the basis of which you can make an informed decision.

  Free installment loan Murder renovation, renovation loan Mortgage lending
Who can apply for this loan? everyone Property owner Property owner
How much is the loan? $ 500 to $ 50,000 $ 5,000 to $ 50,000 from $ 50,000
Is an entry in the land register entry necessary? No No Yes
What is the interest rate pa? from 4-5% from 3-4% from 1-2%
What are the advantages and disadvantages of the financing model? free funds, but high interest rates Hardly any bureaucracy, no entry in the land register, low interest rates and short terms are possible. The approved funds are earmarked for this The cheapest interest, the highest loan amounts, but also the longest terms and the highest approval hurdles (entry in the land register, no debts, processing fees …)
What tip does comparison.de give? The free installment loan is the right thing for all types of financing – except for house modernization. Interest too high! Means of choice for property owners if the loan amount does not exceed $ 50,000: best ratio between interest rate and residual conditions Second best choice for modernizers: lowest interest rates, most bureaucracy. The building loan really only pays off from sums of $ 50,000 upwards

Modernize the house and benefit from subsidies

In Germany, the state supports those who want to modernize an old building, renovate their house to make it more energy-efficient or convert it to suit their age. Different options are possible and it is worth checking in advance whether you can benefit from one or more of them in your project. There are also various regional programs depending on the state and municipality.

Renovation or modernization at low interest rates with the Lite Lender funding programs

The Lite Lender offers various, also combinable programs for low-cost loans and investment grants for measures of energetic renovation and conversion to age-appropriate living.

  • Lite Lender program 151/152/167: “Energy-efficient renovation”: for owners of real estate that was built before 1995. Individual measures of energetic renovation, the conversion to a heating system with renewable energies (loan amount up to $ 50,000 each) or the full renovation to an efficiency house (loan amount up to $ 100,000) are funded.
  • Lite Lender program 159: “Age-appropriate conversion”: for property owners who want to convert their house or condominium in an age-appropriate or burglar-proof manner.
  • Lite Lender program 270: “Renewable energies”: A solar power system quickly costs $ 5,000, plus three times the electricity storage. Lite Lender supports both the acquisition costs for both as well as the installation provided that the electricity generated is fed into the public grid.

Tax relief for the renovation of old buildings

Whoever wants to renovate a listed building is subject to the requirements of monument protection – feared because of the often considerable costs. Here, the state is helping the owner: 9% of modernization costs can be deducted from tax, and that within a period of 10 years after the property has been acquired. This applies to owner-occupied residential property. If the property is rented, 9% is deductible for 8 years and 7% for four more years.

In the case of old buildings (before 1925) without monument protection, the acquisition costs minus the land price can still be deducted at 2.5% per year. For newer properties, it is 2% per year. Timely modernization measures also fall under acquisition costs.

If you are planning to buy a property in need of modernization, you should consult your tax advisor as early as possible. If you only start extensive modernization measures 3 years after the purchase, you can write off the complete renovation costs within 1 to 5 years. However, only if the renovation costs are more than 15% of the purchase price less the property price!

Regional support programs for modernization

In many federal states and municipalities there are also regional grants for house or apartment modernization. The housing subsidies of the federal states can usually even be combined with Lite Lender subsidies. Inquire about this with an on-site energy consultant.

Borrow 1300 dollars – 1300 dollars mini loan with instant payment to your account!

1300 dollars mini loan

1300 dollars mini loan

A major financial bottleneck can always occur. For example, if you have to pay rent, discounts and insurance at the beginning of the month, you can take out a 1,300 dollars mini loan if your salary payment is shifted for once. For larger purchases, an installment loan of 1,300 dollars is more advisable. Here you can find out what you should know about mini loans and how you can get a 1,300 dollars loan.

Which providers offer a $ 1,300 mini loan?

Which providers offer a $ 1,300 mini loan?

If you want to take out a $ 1,300 mini loan, you can do so at Spin Lender or Fine Bank. However, such large amounts of credit are only granted to existing customers.

1,300 dollars is also an amount that not many people can afford in 60 to 90 days. If there are other fees, it can get really expensive. For example, if you apply for a 1,300 dollars loan from Spin Lender, you pay interest of 12.30 dollars for a term of 60 days. However, the term requires the 2-installment option, which costs 149 dollars. The total cost of your loan is 1,461.30 dollars.

An installment loan from a bank usually does not require such additional fees. Even with a better interest rate, you are likely to pay more interest overall than with a mini loan. But you have to pay lower installments and the total cost of the loan is probably lower than that of the mini loan.

If no bank grants you a 1,300 loan, you can turn to a personal loan brokerage platform. Prominent examples are Agree Bank and Instant Cash bank. Once you have registered, you can set your credit request. Registered private individuals then have the opportunity to participate in the loan amount. If this is reached, you will receive the loan. The loans are processed through a bank. This also takes over the repayment of the individual partial amounts to the private donors.

Who can take out a 1,300 dollars loan?

Who can take out a 1,300 dollars loan?

You are probably familiar with the terms of the mini loan providers, because you can only take out a loan of this amount if you have already taken out a loan there.
Otherwise, anyone can take out a loan who has reached the age of 18, is fully legally competent, and has a German place of residence and a German bank account. Over-indebted people generally have no chance of taking out a loan.

Whether you get a loan or not is at the discretion of the bank or broker. In any case, your credit rating will be checked. The test criteria are interpreted to different degrees. With banks, a negative Credit Bureau entry is often sufficient to prevent the loan from being approved. However, it is not impossible because you can also present your current financial situation and offer collateral.

Mediation platforms are usually less strict. Even with a bad Credit Bureau score, you have the chance to get a loan. The platforms also assess your creditworthiness yourself, for example you have the opportunity to prove your regular salary receipt. Similar to a bank, it is also the case with credit platforms that you get better interest rates with a very good credit rating than with an increased risk of default.

What is a 1,300 dollars loan needed for?

You can take out a mini loan of over 1,300 dollars to bridge an acute financial bottleneck. Such situations usually arise in phases in which they are least useful. Perhaps you are earning quite well and have just made a major purchase that slipped you into the disposition. That is not a problem, because the salary always comes on time and the financial planning works out as you planned. Right now there is a system error and your salary will only be transferred two weeks later.

If landlords, utilities and insurance companies want their money at the beginning of the month, the situation can become a problem. In this case, you can take out a 1,300 dollars mini loan and pay your debts. Once the salary is there, you can easily redeem the loan.
Nevertheless, it is advisable to first seek dialogue and request a delay in payment. In most cases, this is not a problem, unless you are regularly in arrears with your payments.

A mini loan is usually not a good idea for larger purchases. If you are sure that you can repay the loan during the short term, you can probably also wait a little longer to save the money. The offer would have to be very good if it were still a bargain despite the additional fees of the mini loan. Financing or an installment loan would ultimately be the cheaper option.

How quickly is a 1,300 dollars loan paid out?

As a rule, you will receive your 1,300 dollars within a few working days. In the case of banks or credit platforms, the transfer is usually made no later than the day after the loan has been approved.

Fine Bank promises to pay out within three to five working days. If you are in the situation of having to have the 1,300 dollars as quickly as possible, you can use the express option. This will cost you 39 dollars. Fine Bank will process your application as a priority and after confirmation, it will take a maximum of 30 minutes for the money to be transferred via flash transfer. Depending on the time, you will receive your money on the same day, but no later than the following working day.

When do you have to repay a 1,300 dollars loan?

When you have applied for your 1,300 dollars loan, you have decided on a specific term. At Spin Lender this amounts to 60 days for the stated amount. You must have paid back the second installment no later than 60 days after the loan approval. Fine Bank offers a choice of 15, 30, 60 and 90 days. On request, you can also arrange a practical installment payment for a fee.
You usually pay back an installment loan in monthly installments. Unless otherwise agreed, the repayment phase begins on the day of approval.

Holiday loan: finance your holiday in installments now!

 

Can you pay for every vacation in installments?

Can you pay for every vacation in installments?

Yes, this is best done with a vacation loan. It is a classic consumer loan. Only that this is not about furniture or a car, but about a journey with payment in installments. You receive a certain amount and pay it back with interest over a specified period. You get a vacation loan for free use. You are not tied to any specific use or to any specific tour operator – for example, you can also co-finance a set of new suitcases.

Attention: Since the purpose of a vacation loan is not fixed, the interest is slightly higher than for a home loan or car finance. Unlike real estate or cars, banks have no security as security.

How do I find the best vacation loan?

How do I find the best vacation loan?

You get the best overview in our installment loan comparison. Here you specify the loan amount, the term and the usage – in this case vacation. With information on the monthly charge and the interest rate, you will then be shown the best offers for your vacation with payment by installments. You can apply for the holiday loan at your preferred bank immediately. In the application form for traveling on installments, you have to provide a few personal details for the optimal loan calculation – if all questions have been clarified, you will receive a loan offer from the selected bank and can return it signed. You then have to legitimize yourself using the video or postident procedure. You will then receive the desired amount.

What loan amount makes sense for a vacation on installments?

The best amount for a vacation loan varies greatly from person to person because every vacation involves different expenses. The rule applies: as high as necessary and as low as possible. That means two things:

  • Since the interest on the holiday loan is somewhat higher, the loan should only be as high as absolutely necessary. Because every dollars that can be dispensed also entails unnecessary follow-up costs. A young couple in love love may want to experience something special during their honeymoon. But also in order to finance this special holiday in installments, affordability must remain the first thought – also for people who want to fulfill their lifelong dream and want to finance a trip around the world.
  • At the same time, you should not set the credit amount too low, since the actual travel price almost always comes with daily expenses on site. Try to calculate in advance what other costs will be added to the travel price due to excursions, car rentals or restaurant visits during the holiday season. Less the available capital, this is your loan amount to finance the planned trip.

Info: “Can you finance vacation in installments?” Used to be a question that did not arise. There was only vacation when there was enough money. However, with the current low interest rates, payment by installments for vacations is no longer uncommon. According to a study by the Society for Consumer Research, 6% of all installment loans are taken out for a vacation. Especially since a vacation loan is cheaper than the extremely high overdraft interest that you have to pay if you overdraw your checking account.

What is the interest rate for a vacation on installments?

What is the interest rate for a vacation on installments?

When you book a vacation on installments, the interest rate is very different for each borrower. If you have very good creditworthiness, also known as creditworthiness, you can get a loan of $ 5,000 for 1 – 2% effective interest for the trip with payment in installments. If the rating is poor and the term is longer, the interest rate jumps to over 9%. Two examples show possible interest and interest costs.

Examples of interest on a vacation loan

In example 1, the loan amount is $ 5,000, which is required for an all-inclusive trip to Ibiza. If the loan has a term of 2 years, the cheapest offer has an annual percentage rate of 3.19%. As a borrower, you pay interest costs of around $ 165.

In the second example, a vacation loan of $ 10,000 is taken out for a 4-month trip around the world. To reduce the monthly charge, we choose a term of over 3 years. Here too, an effective interest rate of 3.19% must be paid for the best offer, which results in interest costs of just under $ 500.

In both examples, the offers correspond to the two-thirds interest. That is the interest rate that is offered to two thirds of all borrowers.

Differences in loan terms for different vacation loans

  example 1 Example 2
Loan amount $ 5,000 $ 10,000
running time 2 years 3 years
best interest rate 3.19% 3.19%
Monthly rate $ 215.25 $ 291.45
Interest costs at the end of the term $ 165.41 $ 492.14

 

Which is better: installment loan or installment purchase from the tour operator?

Many tour operators also offer their customers the hire purchase. This often looks very practical at first glance – in the course of booking, the financing for the trip is paid in installments. However, the offer of tour operators is usually significantly more expensive than a classic installment loan.

While the installment loan is usually made without any additional surcharges, travel providers often ask for additional items such as one-time service fees. The insolvent travel provider Thomas Cook, for example, paid a fee of 12% of the travel price for installment payments – together with the loan interest, an effective annual interest rate of over 20% was incurred.

How long should I choose the loan term?

If you are thinking about traveling in installments and are thinking about when the loan should be paid off, you can follow a rule of thumb: The loan for the holiday should be paid off before the next holiday begins. This will help you avoid the problem of building up a debt tower that will no longer be manageable at some point.

This means that if a major trip is due once a year, the holiday loan should run for 12 months. When it comes to a special trip such as a honeymoon that only takes place once in a lifetime, the term of the loan can be chosen longer. This reduces the monthly installments, as the following table shows using the two-thirds interest rate.

Comparison of monthly rates with different terms

Loan amount Two-thirds interest running time Monthly installments
$ 10,000 3.19% 1 year $ 847.80
$ 10,000 3.19% 2 years $ 430.65
$ 10,000 3.19% 3 years $ 291.65
$ 10,000 3.19% 4 years $ 222.18

Source :vergleich.de, as of November 2019

How important are possible breaks in installments on a vacation loan?

That depends on your personal circumstances. If you are in a permanent employment relationship or are civil servants, then it is rather unlikely that you will have to take a break in the installment – for example due to unemployment. This applies in particular to smaller loans that are paid off after a few months. On the other hand, if you are self-employed and your earnings are irregular, a break in the installment can be very helpful. However, this extends the term of the loan by the suspended months.

Do I need residual debt insurance?

In many cases, residual debt insurance is unnecessary. It pays your monthly installments in the event of illness, accident or death. Experts recommend residual debt insurance for very high loans, such as real estate financing, and if you are the sole earner in the family and want to protect your relatives from financial problems.

Good to know: With a contractually agreed special repayment right, you can repay the entire loan or parts of the loan outside the agreed monthly installments without additional fees. This special repayment can also be useful for a holiday loan. If you are given the opportunity to pay off the loan early, you can use it free of charge.

Under what conditions do I get a vacation loan?

To finance a vacation on installments without or with a down payment, the credit rating is the A&O as with any loan. Your interest rate depends on this, but also the question of whether you can get the loan at all. As a rule, a bank will not grant a loan with a poor Credit Bureau score or only grant it with high interest premiums.

Further requirements for a vacation loan are:

  • Legal age
  • permanent residence in Germany
  • Account details within Germany
  • Proof of income

Can I get a vacation loan without Credit Bureau query?

The banks are obliged to check your creditworthiness. Planning a vacation on installments without a Credit Bureau query is therefore often associated with dubious offers. Some providers promise their customers to grant a loan without an entry at Credit Bureau – that is, the creditworthiness is checked, but this has no negative impact. However, you regularly have to pay additional fees for such offers. The alternative for a vacation loan without Credit Bureau query are the so-called P2P loans, i.e. loans from private individuals. With these you also get a bad Credit Bureau score on your holiday allowance – but often at the price of high interest and additional fees.

Instant credit with no upfront costs

 

The topic of instant credit with no upfront costs arises with classic loans, which German banks do not lend to customers at all. The preliminary costs are always discussed when consumers contact a credit intermediary to apply for an instant loan.

There are credit intermediaries who charge their customers upfront costs. However, this shows little of seriousness. With our contribution we want to point out that consumers take particular care to apply for an instant loan without any upfront costs when they turn to a credit agency.

Why a credit broker is needed

Why a credit broker is needed

In particular, consumers with negative Credit Bureau information have little chance of getting a loan from German banks. Anyone who has had the experience that inquiries are always rejected and urgently need money must look for alternatives. The credit intermediary offers an alternative. Credit intermediaries work with banks abroad.

They are able to provide the loan without Credit Bureau, which is often interesting for people with poor Credit Bureau. Intermediaries charge a commission for this credit brokerage service. That is also legal and quite legitimate. However, if you request advance costs without having brokered a loan, loan seekers can in principle assume that they are being ripped off.

It is by no means customary for loan seekers to pay upfront costs before a loan could even be arranged. It is the responsibility of the consumer to make sure to contact a reputable broker who can mediate the instant loan without any upfront costs – or at least tries to.

Not every loan seeker with a bad Credit Bureau is eligible for a Credit Bureau-free loan. The foreign bank, which provides credit without Credit Bureau, also requires creditworthiness of the customers. Only applicants who can demonstrate a permanent position with attachable income that has been in place for at least one year receive an immediate loan without any upfront costs.

What to consider when choosing a credit intermediary

What to consider when choosing a credit intermediary

The credit intermediaries live on the commissions that either the customers or the banks pay them. Basically, however, it is a performance fee that only arises if a loan can be arranged.

If a loan broker asks a loan seeker to pay money first, it is dubious. Customers shouldn’t go into it and turn to a reputable broker. Those who pay upfront costs do not have the guarantee that they will be given a loan. The money is usually gone.

In order for it to be an instant loan with no upfront costs, consumers must first find out about the credit intermediary and its seriousness. This is possible via the website and through customer reviews on loans without Credit Bureau from customers. Reputable credit intermediaries like Fine Bank have been active on the German market for more than 30 years.

Even in their advertising, they do not promise that they can provide credit to everyone. Consumers who land on a website where the credit broker promises credit even in difficult or hopeless cases should change the page as soon as possible. You will not get the instant credit without any upfront costs. On the contrary, they will have a cost but will not see a loan.

Details on Swiss credit

Details on Swiss credit

The so-called Swiss loan has not come from Switzerland for some time. Only Agree Bank from Liechtenstein is authorized to grant loans to German customers without Credit Bureau information. These are fixed offers of either 3,500 dollars or 5,000 dollars with a term of 42 months and 40 installments to be paid. The first two months are redemption-free. The interest on this loan is not dependent on creditworthiness, but is above ten percent. This means that the Credit Bureau-free loan from Liechtenstein is significantly more expensive than a loan of a comparable amount from German providers.

People without attachable income like unemployed and Hartz 4 recipients have no chance to get this loan without Credit Bureau. The bank does not accept sureties as security.

Instant credit with cash payment

If the topic of instant credit with cash payment is mentioned, it does not mean that the loan is paid out immediately after approval. An instant loan with cash payment rather refers to the fact that there is cash on this loan that can be used freely. This is not a matter of course for all instant loans. If an instant loan is taken out in connection with the purchase of goods, which is often the case with electronics, furniture and cars, the loan is not paid out to the customer in the form of cash. In these cases, the instant loan is granted for a very specific purpose. In practice, this is as follows:

A customer wants to finance a car with credit and therefore turns to a car dealer. For example, if the car bank approves the loan, the customer gets the car – the loan is paid in return to the dealer who provides the car. The situation is similar with furniture and electronics. It is often an instant loan because it is granted immediately, but there is no cash payment to the borrower.

Consumers who are actually looking for an instant cash loan should know the differences. There is a difference between a cash payment and a cash payment. Most of the loans that are advertised in this way are paid out in cash to the borrower’s checking account, who can then use the money freely without having to report to the bank. Most direct banks that advertise the instant credit with cash payment do not have any branches in which a cash payment could take place.

The cash payment for classic loan applications in the form of cash

The cash payment for classic loan applications in the form of cash

A credit with a cash payment, in which money is actually paid out in cash, is rather unusual today because we are in the age of cashless payment transactions. It also has something to do with crime. Many banks have very little cash on hand. Even if customers want to withdraw a lot of cash from their own account, they have to register with their bank beforehand so that they can stock up on cash. If the instant loan is taken out at the house bank and a cash payment is desired, this is of course still possible today. However, the procedure with the cash payment is no faster than a transfer. The money has to be requested, and the bank can transfer the current account just as quickly.

The situation is somewhat different with a mortgage loan. Here the customer goes to the pawnshop, deposits his deposit and always receives the loan in the form of a cash payment. As a rule, this is also about smaller amounts. Customers who go to the pawnbroker often only need the money for living expenses and not for the purchase of consumer goods.

How cash payments for online loans work

How cash payments for online loans work

When applying for an online loan from a direct bank, there is no bank counter and no branches. Nevertheless, an instant loan with cash payment can be applied for online. The term cash payment only refers to the intended use. The credit will not be transferred to the borrower’s account in cash. The latter can then use the money as he wishes.

Conclusion

 

Instant credit, where cash is paid out directly, is no longer standard. Standard is an instant loan for free use, where the borrower gets money transferred to his account and can then do what he wants with it.

TEG (Total Effective Rate) of your credit to better compare

 

It is potentially easy, for a bank or a credit organization, to abuse the credulity of a borrower, for example by promising him the best rate but by charging him, next to it, very high file fees or even exorbitant loan insurance.

In order to give a clear and universal reading grid to all individuals and professionals who wish to borrow a sum of money, the legislator created the concept of “global effective rate”, or TEG, which allows the borrower to view immediately the cost of the entire loan, and therefore compare it more easily to competing offers.

What is TEG?

What is TEG?

The overall effective rate of a loan takes into account not only the interest payable (calculated according to a nominal interest rate), but also all the ancillary and compulsory costs which can easily increase the cost of a loan. The concept of overall effective rate was introduced into French law for the first time by the usury law of December 28, 1966. These provisions, which have hardly changed since with regard to individuals, have been transposed in articles L313- 1 et seq. Of the Consumer Code. The main obligation, for the lender, remains the same: the mention of the TEG is required in any writing evidencing a loan.

Calculation of the TEG

Calculation of the TEG

For example, a loan of $ 10,000 over one year and at a nominal rate of 5% (i.e. $ 500 of interest payable) will have an identical TEG of 5% if no other fees are required from the borrower. If, on the other hand, they are billed administration fees of $ 100, the total cost of the credit increases to $ 600, and the TEG then becomes 6%. This is the reason why the TEG is a much more reliable indicator than the nominal rate for determining the total cost of a loan.

What is the difference between TEG and TAEG?

What is the difference between TEG and TAEG?

Although we still speak, in the usual language, of the TEG, this one was in reality replaced by the APR, Annual Annual Effective Rate, since October 1, 2016. The difference between TEG and APR relates to certain costs which n were, so far, not included. The APR therefore takes into account more ancillary costs than the TEG, in particular disability death insurance or unemployment insurance. The formula for calculating the APR is also more precise by annualizing all of the charges, in contrast to the TEG which is calculated monthly.

What does TEG contain?

What does TEG contain?

As an indicator whose purpose is to aggregate the various costs linked to a loan, the TEG will consist of all or part of the following elements :

  • The nominal rate of credit, that is to say the rate used as a reference for calculating interest, normally constitutes the main cost of credit and therefore the major part of the TEG. If the nominal rate is variable, in the case for example of a revolving loan or a mortgage, the value taken into account for the calculation of the TEG is that of the very first nominal rate, at the beginning of the repayment of the loan. This implies that the TEG of a variable rate loan is never completely reliable, since it is impossible to predict the evolution of the interest payable.
  • For the calculation of the TEG are added, according to the Consumer Code, all “costs, commissions or remuneration of any kind, direct or indirect, including those which are paid or due to intermediaries”. This includes in particular the administrative fees, any brokerage fees and guarantee fees, at least if the amount of these is known at the time of signing the loan.
  • In the case of a mortgage, whether the borrower has purchased insurance from his bank or that he has still exercised his right to delegate loan insurance and has therefore chosen to take out insurance with a third-party organization, the cost of its borrower insurance is integrated into the TEG. In the case of consumer credit, loan insurance being optional, the cost thereof may or may not be included in the TEG.

What are the benefits of TEG?

What are the benefits of TEG?

The benefits of the TEG, or APR, for the borrower are obvious. Except in relatively rare cases where the rate is missing or incorrectly calculated, an individual can rely on this very precise indicator to have a good summary of the total cost of the loan he is considering. Both objective and comprehensive, the TEG constitutes the legal guarantee that the borrower will not be faced with any hidden or unforeseen costs. Universal, it allows you to draw up a comparison between several loan offers very simply and must therefore be a privileged decision-making tool for selecting the best application.

Although the TEG is a primary indicator, it is not recommended to focus only on it. Other elements may legitimately guide your choice among several loan offers with fairly close costs, including in particular the possibility of adapting the monthly payments during repayment (increase, reduction, deferral, etc.), that of benefiting from an early repayment. without penalty, or the type of insurance that retains your preference (fixed or declining premium).

Without forgetting, of course, the quality of the commercial service offered by the bank and the personal efficiency of your advisor!

Which credits are affected by the TEG?

Which credits are affected by the TEG?

The rule is simple: as soon as there is a loan of money to an individual or a professional, the calculation and display of the TEG are two obligations absolutely essential for the lender. It is therefore due as well for a mortgage as for a credit allocated to consumption or even a personal loan. It also obligatorily applies in the event of a bank overdraft on your current account since, again, this is a cash advance granted by your bank.

On the other hand, and since no money is loaned, it logically does not apply to rentals such as leasing, rental with option to purchase (LOA) or even long-term rental (LLD). In this case, it is up to the interested customer to estimate for himself whether the offer made to him is interesting, and therefore to be extra vigilant.

TEG error during a mortgage: what to do?

It is estimated that, in 40 to 50% of cases, the TEG of a credit contract may present an error. Indeed, the calculation method is complex. Following the media coverage of these issues, in particular on home loans, this percentage tends to decrease and the banks are increasingly vigilant when calculating the TEG.

In the event of an error found, the borrower can turn to the courts for damages. However, the wave of protests that appeared between 2010 and 2015 fell sharply.

If the courts were rather favorable to the borrowers at the beginning, the judgments of the last years are much less. Few files thus reached the compensation by the bank.

In addition, some specialized companies offer their services to study the calculation of the TEG and find a flaw: be careful, some have gone bankrupt in recent years, to the detriment of borrowers who had paid fees or started proceedings.

In addition, it is necessary to advance the costs related to the legal proceedings, at the risk of not being reimbursed if the court decision is not in favor of the borrower.

Incorrect, illegal or illegal TEG: how to contest?

Incorrect, illegal or illegal TEG: how to contest?

The complete absence of TEG on a loan contract is the most glaring anomaly, but is very unlikely to arise if you use a bank or a professional credit organization. If however this should happen, you will have a period of five years to challenge the terms of the loan in court, from the date of signature. The lender at fault is liable to a fine of $ 4,500 and, above all, to forfeiture of the right to interest (for consumer credit) or to the automatic substitution of the credit rate by the legal interest rate, which amounted in 2014 to… 0.04%!

An error in the calculation of the TEG constitutes a much more frequent litigation and is contestable under the same conditions, except that the limitation period of five years runs not from the signature, but from the moment when the error was discovered.

Finally, it should be remembered that the overall effective rate of a loan cannot exceed the usury rates, as defined each quarter by the Banque de France. If this were the case, the lender could face a heavy criminal penalty (two years’ imprisonment, a fine of $ 45,000) and the reimbursement of sums wrongly received or their charging against the capital remaining due.

TEG: the most important criterion of a loan… but not the only one!

The TEG is an essential indicator, but it is not recommended to focus only on it.

Other elements may legitimately guide your choice among several loan offers with fairly close costs, including in particular the possibility of adapting the monthly payments during repayment (increase, reduction, deferral, etc.), that of benefiting from an early repayment. without penalty, or the type of insurance that retains your preference (fixed or declining premium).

Without forgetting, of course, the quality of the commercial service offered by the bank and the personal efficiency of your advisor!

What could be the consequences of non-payment of a loan at a bank and an MFI?

Not all borrowers see what difficult consequences may arise in case of delay in the loan, and then they have to pay heavy fines and interest on the loan. This material will present the consequences that may arise in case of untimely payment of the loan, as well as provide effective recommendations on what to do in such situations when there is nothing to pay the loan.

What are the reasons for non-payment of a loan?

  1. Incorrectly calculated personal budget, because of this it is not possible to allocate funds to pay debt;
  2. Due to the loss of a person’s job or position, the minimum income that cannot cover all debts on the loan;
  3. The person has more urgent expenses, for example, urgent payment for medical services, unforeseen repairs or a trip;
  4. A person simply forgot about paying a loan or does not want to do it.

To avoid such troubles, many lending companies call borrowers and reminds them of loan debt. More serious actions are taken by the company only when the borrower begins to ignore all warnings and reminders.

 

Measures taken by banks with debtors

debt loan

If the client forgot to pay only once, then the bank can simply charge a daily fine, the amount of which is indicated in the loan agreement. Also at this time, the user can receive calls and reminders about paying a loan, as usually happens within 60 days.

If the client ignores the bank 2 months later, the financial institution has the right to such actions:

  • Transfer the debt of the borrower to a partner credit organization, which will be able to influence it using its own methods of repaying credit debt
  • Also, the bank can sue, which can bring even more problems, so the court can prohibit the borrower from going abroad, seize the user’s accounts, and also make a tax request and seal the debtor’s property;
  • The bank can also attract collection services, this method will act psychologically, it applies to dishonest customers. Here collectors can come to the address of residence, threaten, call at 3 nights.

As practice shows, it is still better for the borrower to contact the bank and negotiate on his own, so you can avoid trouble, extend the loan period or arrange a restructuring.

 

What do MFIs do when a loan is not paid?

credit loans

Each microcredit company has its own waiting period for non-payment of a loan when the debt is not critical, but a penalty is charged to the total amount. On average, companies give 30 days for the borrower to repay the entire amount of the loan or reissue an online loan. If this period is already coming to an end, and the user does not want to correct the situation, then microcredit organizations may resort to more serious methods:

  • The service submits information to the Credit History Bureau, which can greatly affect the credit history of the borrower;
  • Here they can also connect collectors that will psychologically influence the debtor;
  • The organization can go to court and then there will be a long process to pay the debt.

In order to avoid such difficulties, it is important to notify the credit institution in advance of the difficult financial situation and ask for a loan extension. So, the client will just have to pay interest on the loan, but the loan body itself can be paid later, when financial difficulties pass.

 

What are the actions of the debtor?

debt loans

First of all, what the debtor needs to remember is that you should not panic and avoid communicating with credit organizations. Even the most difficult issue can be resolved peacefully by concluding a new, more loyal contract for the borrower. If the client is afraid to receive an overdue loan, it is better to immediately issue a prolongation or restructuring of the loan, so that it will be possible to avoid debts and fines, besides, no less important, the credit history will not suffer and will remain positive.