Understandably, when it comes to taking out a loan, most loan seekers and borrowers primarily think of the loan interest payable. Borrowing is the main cost factor associated with each loan, except for zero-percent financing or negative interest. In addition, however, it is often forgotten that there may be other costs associated with loans, which are also referred to as additional costs.
Depending on the offer, these additional costs may not be too low, so you should always check with the respective provider whether there are any additional costs in addition to the loan interest.
How high are the costs in the form of payday loan interest rates?
Before we go into more detail on possible additional costs for loans, we would like to briefly give an overview of the interest rates you currently have to expect for loans. First and foremost, the lending rates depend on the one hand on the provider and on the other hand on the type of loan. Most lending institutions generally offer at least the following three standard loans:
- credit Facility
- installment loan
- Real estate loan
In addition, other types of loans are sometimes offered, such as call and credit lines, business start-up loans and more specific loans, for example, intended for specific customer groups. Most loans used by bank customers are consumer-related. These include, above all, the disposition and the installment loan. Disbursement loans are still very expensive in terms of the debit interest payable and, even in the low-interest phase, are usually between eight and eleven percent.
Significantly cheaper are the current loan rates in the installment loans, because there you pay less than two percent interest on the best offers on the market now. Sometimes you can even take a loan with a negative interest or a zero-percent financing. Real estate loans that are already available for less than one percent of lending rates are at least as cheap.
If we take a simple consumer loan in the form of an installment loan as an example, with a loan amount of, for example, 10,000 euros, you would currently incur an average of about 300 to 600 euros in annual borrowing costs.
Processing fees banned for several years
One cost factor, which was more common in the past besides lending rates in finance, was handling fees. However, since a supreme court ruling these fees are usually banned in the meantime, at least when it comes to general processing fees for consumer loans. In former times, handling fees of between one and three percent of the loan amount were quite common, while banks are no longer allowed to charge this cost factor today. Nevertheless, you should still keep a watchful eye on credit offers, if not yet processing fees are charged.
Sometimes the fees are different and then it would actually be necessary to check whether the credit institution is entitled to charge this cost. In general, however, there are no more processing fees for ordinary installment credits, so this cost is usually eliminated today.
Fees for keeping the credit account
A fee, which is relatively common as additional costs for loans, is the account maintenance fee. This is not only true for current accounts, but also for loan accounts, it is quite common that the bank, for example, an annual fee for the management of the credit account in the amount of 20 or 30 euros charged. Of course, compared to the loan interest payable, these costs are only a small part, but it may make sense to inform yourself at least about the amount of the account maintenance fees. In addition, you can usually quote these costs as income-related expenses in your tax return.
Provisioning interest: only relevant for real estate loans
Another additional cost factor that may be associated with taking out a loan is the provisioning rate. Of interest, this fee, however, only for real estate loans and then by far not all borrowers are affected. The lending fees are only charged by the lenders if you do not immediately call up a loan for real estate that has been made available, but if, for example, three or more months elapse between the provision of the lending amount and the actual claim.
In particular, provided that you use a real estate loan to finance a new building, the provisioning interest may be an issue. For construction projects, it is customary to retrieve the loan amount in parts, as is usually paid for construction progress. In this case, you should talk with your bank as to whether and at what time commitment rates are calculated and how much they are. Most of the time, there is some room for negotiation, so with a bit of skill you can reduce or even avoid the additional costs of provisioning interest.
Prepayment Penalty: Early redemption of loans can be expensive
Other additional costs that are also not excluded for the loan are the prepayment penalties. This cost factor is also of particular relevance in the area of real estate loans, although it may also be possible under circumstances that a prepayment penalty will be charged in the event of premature repayment of a installment loan. First and foremost, however, mortgage lending is most often affected.
You should know that the bank may only charge a prepayment penalty for real estate loans on the condition that it is a loan with a fixed interest rate. For variable real estate loans, where the bank can adjust the interest rate at any time, it is not customary to charge a prepayment penalty. Furthermore, it is important that you calculate before a premature repayment of the loan, whether you can still save interest after paying the prepayment penalty. In this case, you have to compare the planned interest saving with the new, cheaper real estate loan of the prepayment penalty to be paid.
Indirect costs by taking out insurance
While not necessarily welcome, some credit institutions still appear, at least for some clients, to be more likely to approve a loan if insurance is being provided at the same time. First and foremost in this context is the residual debt insurance, which not a few banks offer almost automatically with the loan. While such collateral can be useful on the one hand, on the other hand it does, of course, cause costs directly or indirectly related to the loan taken up.
If, for example, you take out a installment loan of € 10,000 and decide to take out a residual debt insurance, the costs may well be between € 300 and € 600. For that reason you should not be persuaded to take out any insurance, but in fact you should only conclude it in connection with the borrowing if you consider it useful.
Typical insurances that are often brought into play as part of a loan or bank loan commitment include:
- Residual debt insurance (credit insurance)
- Endowment policy
- Term life insurance
- Products for asset accumulation (fund savings, private pension insurance, etc.)
In the best case, your credit costs are therefore exclusively lending rates, but especially for real estate loans, there may well be additional costs that we have outlined in the previous article. When comparing bids, you should not only pay attention to interest rates, but also seek information on whether additional costs are incurred and how high they are.