The installment loan is a contractual obligation of the borrower towards the lender. The installment loan agreement belonging to the installment loan regulates the granting of the loan amount. They are repaid in the form of monthly installments. These consist of an interest and a redemption component and are paid by the borrower over a certain term.
The interest rate of an installment loan agreement is based on the current market level, whereby the effective interest rate must be distinguished from the nominal interest rate. The effective interest rate also takes into account the additional costs incurred when borrowing, which the nominal interest rate disregards.
Residual debt insurance to secure the credit debt
It is not uncommon for credit institutions to grant installment loans with residual debt insurance, whereby the residual debt insurance serves to minimize the risks of default. It can include both the protection of individual components and the entire debt. The residual debt insurance is taken out individually or as a package with the respective installment loan. It can be found particularly often when granting installment loans to pensioners. Here it secures the specific risk of default due to the death or illness of the borrower.
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To act with caution
Installment loans with residual debt insurance should not be taken out prematurely, because the residual debt insurance often hides additional costs for the consumer. Basically, the following applies: When taking out residual debt insurance, the borrower pays a one-off amount, which, added to the loan amount, leads to a higher interest burden.
In the best case scenario, this one-off amount is not disproportionately high in relation to the loan amount, so it must not exceed a total of 10% of the actual loan. A comparison here on Ratenkredit.de can help you find the best installment loan for your purposes.
Take into account the insurance conditions
The consumer should pay particular attention to the insurance conditions when taking out a cheap installment loan with residual debt insurance. The components of the general terms and conditions include the obligations that the consumer has to comply with before and after taking out insurance and the violation of which can lead to an exclusion of the obligation to pay benefits.
In the terms and conditions, providers also refer to any waiting periods that the insurance companies only take a few months to take effect. Installment loans with residual debt insurance are therefore primarily in the interest of the lender, who thus protects himself against credit risks. With the necessary caution, the borrower can counteract an excessive financial burden from the residual debt insurance.