Repaying a loan

The repayment period of a loan depends on the size of repayments, the interest rate and other loan expenses.

A loan may have a fixed interest rate, or the variable reference rate of interest may be used as the interest rate. The reference rate is often tied to the Euribor rate or to the lending bank’s prime rate. In addition to the reference rate, the bank collects a customer-specific margin. In other words, the total interest consists of the margin and the fixed interest or the reference interest.

The longer the loan period, the higher the total costs. Even if the loan period is several years, you can shop around during the loan period and switch to a cheaper loan. When comparing loans, pay attention to any possible loan establishment costs and service charges.

Repayment methods

The total cost of a loan varies depending on the repayment method you choose. The method is always agreed upon when you take out the loan.

Before taking out a loan, consider which of the repayment methods is best suited to your financial situation. Do you want to pay off the debt quickly or pay the same monthly amount throughout the loan period? The repayment method may affect your financial situation, especially if the interest rate goes up.

In the case of a fixed annuity loan, each repayment is of equal amount. Fluctuations in the interest rate affect the length of the loan period. If the interest rate goes up, the loan period is extended, and if the interest rate falls, the loan period is shortened.

In the case of an annuity loan, the duration of the loan period is agreed upon at the time of taking out the loan. Fluctuations in the reference rate affect the amount of repayments. If the reference rate goes up, the monthly amount to be paid increases.

If you choose to pay equal instalments, the repayments are initially higher and get smaller as the loan principal decreases. The repayment amount depends on the reference rate: if the reference rate goes up, the amount to be paid increases.

A bullet loan is a loan repaid in one single payment at the end of the loan period, and only interest is paid during the loan period.

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For more information on the different repayment options, contact your bank or credit institution.