What is a short term personal loan
The period in which the borrower has to repay the loan amount plus loan costs is called the loan term. The credit period begins on the day the agreed amount of money is paid out by the lender.
The loan term results from the intended use or the assumed useful life of the property to be financed, from the calculated loan amount and from the loan installment. It will be between short, medium and long term financing differentiated.
If the account limit is exceeded, the bank usually charges considerably higher interest than on a loan. Some banks also charge a higher account management fee in the event of an overdraft.
Short term funding
A short-term loan helps to overcome financial bottlenecks, e.g. for a few months or a year. There are a few here Alternatives to the bank loan:
- A salary advance from the employer
- A personal loan from family and friends
- The use of the bank account overdraft facility
- An installment payment
Medium term financing
With a consumer loan, for example, consumer goods with a medium lifespan can be purchased. A useful life of five years is usually assumed for cars and a useful life of ten years for furnishings. Durable goods are constantly losing value.
Besides bank loans also count Installment purchase and mail order loans for medium-term financing. An installment purchase is a purchase with retention of title on the part of the seller, i.e. the goods are handed over, but only become the property of the buyer after all installments (purchase price and credit costs) have been paid. In the case of mail order or goods credit, the credit agreement must be concluded in writing or on a permanent data carrier. Here, too, the pre-contractual information obligations under the Consumer Credit Act (VKrG) must be met. Commercial lenders must also check the creditworthiness of the borrower.
Loans for the purchase, construction, maintenance or renovation of a property (e.g. a house, apartment or piece of land) are usually taken out on a long-term basis. They are also called Residential or investment loans designated.
The loan amount is much higher than for medium-term consumer loans, but the purchases also represent a lasting value. The financing can also be done through several loans. Special forms are e.g .:
- The credit line (overdraft facility): With the credit line, capital is available for agreed periods, e.g. depending on the construction stage. There may be additional costs for this.
- The revolving current account credit: this is a "credit in current settlement". The borrower can freely dispose of part or all of the agreed loan amount within the specified loan period.
Impact of the loan period on the total burden
The term of the loan depends largely on the financial possibilities of the borrower, i.e. on the amount of the monthly loan installment. The shorter the running time, the lower the total load.
- A longer loan term increases the overall burden. The monthly loan installment is lower, but the longer a loan runs, the more interest you have to pay. In some cases, the loan term can be extended if the loan interest rate rises or a deferral of the loan installment payments, i.e. payment at a later point in time, has to be agreed.
- A shorter loan term reduces the overall burden. The monthly loan installment is higher. In some cases, the loan term can be shortened if the loan is repaid early or if the interest rate falls while the loan rate remains the same (with variable loan rates).
Consumer Credit Act (VKrG)
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