Anyone looking for a loan often attaches particular importance to the longest possible term. The monthly charge can be kept within limits, especially with larger loan amounts. However, long-term installment loans don’t just have advantages. Because often the costs for installment loans with a long term are somewhat higher than if a shorter term is chosen for the loan. Therefore, the borrower should carefully consider whether a long-term installment loan is really worthwhile.
Long-term installment loans are more expensive
Most banks offer loans up to 84 months. It is rather rare to find loan offers with 94 or even 120 monthly installments. As a rule, it can be said that the calculated interest is higher if the term is longer. The reason is the higher default risk for banks with long terms.
The longer a loan is repaid, the greater the risk that the borrower will default on payment due to unforeseen events such as unemployment, incapacity to work or divorce. This is why most banks charge appropriately high interest rates for long-term installment loans. Since one has to calculate the interest on the term, the amount of the total repayment has to be increased considerably in some cases. That is why it is worthwhile to pay particular attention to banks that offer a fixed interest rate for all maturities when comparing loans.
Protect long-term installment loans
Taking out residual debt insurance can be particularly worthwhile for long-term installment loans. Because it is difficult to predict whether you will still have your current job in a few years. The longer the term, the more difficult it is to predict what can happen during this time. With residual debt insurance, you can protect yourself against unforeseen unemployment or incapacity to work. In these cases, the residual debt insurance would then pay the monthly installments.
In addition, most residual debt insurance policies also offer death protection, which protects the bereaved from having to pay for the remaining amount of the loan. Before deciding on a residual debt insurance, however, you should compare the individual insurance policies carefully. These differ considerably in terms of costs and services. You should take a special look at the small print. Here, among other things, the exclusions are listed for which the residual debt insurance does not provide any benefits.
Long-term official loans
Civil servants and civil servants also enjoy a special status when it comes to lending due to their secure income. The default risk for banks is relatively low here, which is why civil servants are also offered long-term installment loans on favorable terms. The civil servant loan is a special form. It is a mixture of installment loan and capital-building life insurance.
The interest is paid directly to the lender and the repayment is made through regular contributions to life insurance. When the life insurance period ends, the loan is repaid in one sum. Official loans are possible with a term of up to 20 years. This results in only a small monthly charge. This means that even large amounts of credit can be repaid conveniently. Official loans are offered by various banks and insurance companies.