Those who find out about a wide variety of financing models will sooner or later come across the variant of the final loans. These loans attract many customers primarily because of their low costs during the term, but when taking out a final loan, you should consider the burden at the end of the term. Therefore, these loans have to be checked carefully.
How does a final loan work and for whom does it make sense?
Basically, a final loan works just like a normal loan: After borrowing, the customer receives his loan amount. However, this loan amount does not have to be repaid monthly, but the entire loan must be repaid at an agreed term. Only interest must be paid to the bank during the term of the contract. Since the monthly charge is very low due to the sometimes low interest rates, taking out a final loan is tempting for many.
However, it should always be borne in mind that such a loan should only be made if the funds are actually available for repayment at the end of the term. If, for example, life insurance is due after a term of ten years, the loan can be repaid with this sum of money. Another variant is often the case with mortgage lending.
A final loan is taken out and repaid with a building society contract after a contractually agreed term. Since this was not fully saved at the beginning of the building financing and could therefore not be loaned, bridging with a final loan is a good alternative in this case.
Advantages of a final loan
A big advantage is of course the low cost. Since no repayments have to be made, the costs for the borrower are very manageable. However, there are usually only advantages for those who can actually make the repayment based on a cash payment that is then due. If this is the case, a final loan is a good option for financing.
Disadvantages and risks of a final loan
A major disadvantage or risk can arise from a final loan if it cannot be repaid at the end of the term as contractually agreed. This is especially the case if the due investment, the life insurance due or the home savings contract due is suddenly needed for other purchases. Banks can often even assign the cash payment due so that the borrower cannot otherwise dispose of this money.
Only take out final loans if repayment is guaranteed
One tip that all borrowers should keep in mind is that a final loan should only really be made if the repayment can actually be made. No final loan should be taken out with the prospect of money from inheritances or severance payments. However, if life insurance, building society contracts or savings contracts are available to repay the loan, this loan option is definitely a consideration for all those interested in credit.