Consumers wishing to take out a loan should check to what extent they can afford a loan before applying for the loan. The basic prerequisite for this is a so-called budget calculation, which the banks also carry out, but which every loan seeker can carry out alone in advance. The income ratio should be such that the monthly income is higher than the monthly expenses and the possible credit installments can easily be financed from the excess income. With this calculation, it must also be taken into account that the income situation can change significantly in the short term due to sudden illness or longer unemployment, even then it should be ensured that the installments can still be paid off. Many consumers do not pay attention to this, and banks make it too easy for them to obtain consumer credit.
How much installment payments
If you then have to spend several hundred USD a month for installment payments, then even losing your job can help you suddenly and unexpectedly find yourself in the debt trap from the perspective of the borrower. Overindebtedness is said to be the case when, despite a drastic reduction in expenditure, the income is no longer sufficient to pay for all expenditure, including credit obligations. The financial scope between income and expenditure should be so large that even if the income is reduced by 40 percent, all expenses can still be met, but who cares.
Since the Hartz IV regulations came into force, in the worst case a borrower has an income of 2,000 USD within two years to a standard rate of 345 USD from Hartz IV and rental payments. From what are the upcoming installments to be paid? Many banks offer loans with extremely long terms of 84 months and longer. That is seven years for a consumer loan. The items that were purchased with the loan may no longer exist, and installments still have to be paid. A borrower should always make sure that the loan term, even if it promises small installments, is not chosen too long. If you cannot now afford to pay off a rate of 120 USD and instead choose a term in which the rate is then only 70 USD, you will no longer be able to pay the rate if your income situation changes can.
Long loan terms
Long loan terms generally cost more money and many banks also use the residual debt insurance, which they then sell to the borrowers for their own security with the loan, and this insurance is expensive and even more expensive with a long term. The indebtedness of the people would be significantly lower if many already carried out their own household accounts before taking out a loan. Online loan calculators on the Internet can be helpful if you want to calculate in advance how high the rate can be and what costs are involved.