Today, there are a large number of loan options that you can take advantage of if you want a little more money in your account. But it is far from all people who are in control of what is what in the loan industry. Therefore, here comes a review of the most commonly used terms that you will encounter when you are borrowing and their importance to you as a borrower.
When you take out a loan
This means that you enter into an agreement with a person or company that you receive some money, if you repay them again, over an agreed period.
There are generally two types of loans, consumer loans and bank loans.
Is the classic loan where you arrange a meeting with the bank. The typical bank loan – which can be used, for example, to buy a home or invest in a business, is characterized by:
- Long term
- Low interest rates
- Requires security
- Larger amount
Long approval process
A consumer loan is a specific type of loan, which is mainly aimed at people who want access to money quickly and without having to provide collateral.
Consumer loans are most often used to buy consumer goods, be it a purchase of a trip, a new television or something quite third. Consumer loans are characterized by:
- Short approval process
- Short term
- High interest rate
- Does not require security
- Smaller amount (down to DKK 500)
The interest on a loan is an expression of the percentage of the amount you have to repay, in addition to the amount borrowed. Interest rates vary widely from loan to loan. On most loans, the interest rate will be the same throughout, this is also called a fixed rate.
If a loan with a variable interest rate is taken, there will be a chance that the interest rate will change during the loan period. It can be both a good thing and a bad thing. The vast majority of consumer loans use a fixed interest rate, where the variable interest rate is typically used for long-term loans.
Is a combination is interest and installments, which determine how much you have to pay in kroner each month during the repayment period. The performance of a loan is important as you can easily get an overview of how much you have to pay exactly. When you take out a loan, you can see in the contract how much the monthly payment is. This makes it easier to compare individual loans.
The maturity is an expression of how long the loan extends – how long the loan runs. In addition, there is also typically a link between maturity and interest rates – as shorter-term loans usually have higher interest rates than long-term loans.
With most loans, you will have the opportunity to influence the maturity. If you want to repay your loan faster, you can usually contact the loan company and arrange it. If you reduce your maturity, your monthly benefit will go up accordingly.
If you want additional information about the individual factors, ask when you take out a loan what the individual things in your contract mean. Most companies will gladly explain to you what the individual things in the contract mean to you.