Interest on the foot

Interest is a compensation that a person or institution receives for lending money. Interest is paid by the borrower of the money. Consumers receive savings interest or pay interest on an account with a bank, also called debit interest. You can save money by keeping track of interest rates. Comparing interest has become easier because you can do this online. You will sooner or later have to pay or receive interest, for example your savings account or when you take out a mortgage loan.

More about interest

Another name for interest is interest or interest. This is the periodic fee that you receive. Which calculation is used to determine the interest paid? This is done on the basis of interbank interest rates. Distinction is mainly made between nominal interest rates and effective and real interest rates. The amount of interest is indicated as an annual percentage of the principal sum, if you divide this percentage by 100 you will receive the interest rate. Interest is usually no more than a few percent, but often changes in a certain period. For example, the interest rate may be higher on one occasion and lower on the other occasion.

Interest rates (why interest rates change so often, how you can negotiate better interest rates by going to different banks, difference between fixed / variable interest rates and which ones you take best in which situation)

Fluctuating interest rates

Inflation is the main cause of interest rates fluctuating. When there is high inflation, this also means high interest rates. The money is worth less and capital shrinks. The effect of this is determined on the basis of the real interest rate. The inflation percentage has already been collected. The level of this real interest affects the national economy. Because more interest means that there is less money for investments. With low interest rates, there is more room for companies to invest and they can use more money well. It is an incentive for the economy when you receive less interest. This is also the case with the housing market because with a low interest rate it is easier to take out a mortgage loan. As a buyer you can borrow more via a home loan when the interest rate is low. A low savings rate is therefore related to many opportunities for the (national) economy.

Fixed and variable interest

Choosing a fixed rate means that interest rates remain the same during the term of your mortgage. With this option, you know in advance exactly what your monthly costs are for the payment. Despite a rising interest rate, your monthly costs remain unchanged if you opt for a fixed interest rate. The other option is to opt for a mortgage loan with a variable interest rate. These types of loans are a lot cheaper than home loans that use a fixed interest rate. You can save a lot of money per month if you opt for a variable interest rate. Variable interest rates can also pose a risk. When interest rates rise, this means a higher monthly payment for you. You can reduce this risk by agreeing a maximum variation with your bank. The choice between fixed interest or variable interest is therefore not easily made. In recent years, a lot of people had bad luck when they relied on bank interest rate forecasts. It often happened that they were completely wrong with the prediction for mortgage interest.

Flexibility and preparation

With mortgage loans, the real saving lies in good preparation and the degree of flexibility. Interest prognoses often turn out to be dramatically incorrect, just think of the collapse of the US mortgage market. You are advised to be and remain flexible. Many borrowers who have not done this are stuck to expensive mortgage loans for the long term. You would do well to request different offers and to compare the interest rates. The flexibility and possibilities for mortgage loans vary widely. Always read the small print that states the possibilities for canceling the loan. If you opt for a variable rate loan, you can receive help from the government through certain legislation. The second year of your loan can only increase by a maximum of 1% compared to the original interest rate. For the third year of your variable-rate loan, this may only increase by a maximum of 2%. This means that large fluctuations can only occur from the fourth year onwards. By using a simulation for a home loan you can find out for yourself which form of interest is more favorable for you. Ultimately, it remains difficult to determine who makes the best choice when it comes to fixed or variable interest rates. For each borrower it is especially important that they assess their own risk. So you can see what you will have to pay in the worst case and whether you can bear these charges. The use of so-called intermediate formulas is also recommended. After all, the first years of paying off are the hardest. For example, you can opt for fixed interest for a period of ten years and then apply adjusted interest every five years.

Interest rate mortgage loan

To make your mortgage loan cheaper, there are some possibilities. There are conditional and commercial discounts. Conditional discount means that you can get a discount when you meet certain conditions. An example of such a condition could be that you have to take out a fire insurance to obtain the discount. The interest discount falls away when the conditions no longer apply. Commercial discounts are cheaper because you do not have to deal with certain conditions.

Unforeseen circumstances

Sometimes a strategy with an interest rate that is not fixed is preferable. In times of recession and economic turbulence, interest rate forecasts become increasingly difficult. Mortgage loans with a fixed interest rate can also be experienced as negative. Especially if unforeseen circumstances occur in the work situation or in the event of a divorce. If you then also have to deal with a renting rate because you have to terminate the contract, the choice for the relevant credit agreement will still be very expensive.

What is a money reserve?

The end-of-year period is not only a busy but also an expensive period for many people. Even if you do not go on holiday, there are often gifts, parties and annual bills that have to be paid. Just think of due dates for insurance policies (for tax reasons), for example. If you do not have the required savings, you should open a credit or cash reserve. Always handy to spread costs.

What is a credit gap?

You will find a money reserve under many names: a credit opening, a revolving credit, a credit line, … They all indicate that it is a credit that is unlimited in time and can be withdrawn again as soon as a capital part has been repaid. In this way you always have cash.

Characteristics of a money reserve

It is very characteristic that a variable interest rate is always used for a money reserve . This is determined once a month. This is because with a revolving credit there is no fixed end date: you can always withdraw money up to the permitted credit limit. The credit line is usually between 1,250 euros and 10,000 euros.

The most important features are:

  • There is no fixed term. In principle, a money reserve has no final maturity.
  • There are no (or small) fixed repayments. The withdrawn amount must be repaid according to a certain time (legally determined at 1 or 5 years). Amounts up to 3,000 euros must be legally reimbursed annually according to the principle of the zero-term period. This is 5 years for higher amounts. When the reimbursement has taken place, you can use the money reserve again and a new zero date is set. This also means that costs can never be charged for an early repayment.
  • You always have money available as long as the limit is not reached. You decide yourself when you record it.
  • The interest is calculated monthly and must of course be repaid.

Different types of money reserve

A credit line is therefore a flexible credit form, especially suitable for unforeseen expenses of which you do not know the total amount in advance.

Most money reserves will be linked to a current account. However, it is increasingly happening that credit openings are also offered with a money reserve via a credit card such as VISA or MasterCard (not for prepaid payment cards). And as you have undoubtedly already noticed, this is not only done by the classic banks. More and more stores also offer credit cards. The credit can then be used for purchases within the store chain. Mediamarkt and Carrefour are just a few examples of this. Attention: always read the conditions carefully and check out the Annual Cost Percentage (APR).

Request a money reserve

Before you can dispose of the credit an application must be submitted. This in itself is not very different compared to other loans. An application can also easily be online nowadays. Almost all lenders have a simulation tool on the internet. It also saves you a lot of time and the conditions are stronger than for example with a home loan.

You indicate the amount of credit you want to use and the lender looks at your options and checks your details with the National Bank. Once approved, the credit is credited to your current account. Or, as mentioned before, linked to your credit card.

The credit opening is becoming increasingly popular in Belgium

According to the statistics of the National Bank of Belgium, almost 8.2 million consumer credit contracts were issued in 2017. With 6 million contracts, the credit line is by far the most popular form of money refueling. This form of financing is touted by sellers as a lot more flexible than the installment loan . The fact that the amount made available through a credit opening can be retrieved again and again, however, also entails the greatest risk.

The core of the story is that as a consumer you do not live above your stand. And that is easy. Incidentally, it is a misconception that only people with lower wages suffer from credit problems. To begin with, it is very easy to obtain multiple credit openings and cards from various stores and lenders. The lender only needs to check whether you are not registered as a defaulter . If that is not the case, you get green light.

Although it would be unreasonable to label any kind of consumer credit, it is becoming increasingly common to report malpractice. Consumer credits can certainly be useful in a number of cases. Just think of a renovation , the purchase of solar panels or larger purchases such as those of a car . But for a new TV, smartphone, etc., you better put aside a few months of savings.

Avoid malpractice

Anyone who decides to enter into a consumer credit, should keep the following in mind.

  • When you draw up a contract for credit opening , an agreed amount is made available that you can freely dispose of. Usually this amount is higher than the purchase price of a certain device and you can also re-record it as stated. Realize that a credit entry contract is not free and that the rates vary quite a bit from the provider to the provider. As always, comparing and reading all conditions is the message. Legally you as a borrower also have to take into account the so-called zero setting term . (This means that each time after a certain period of time you have to repay the outstanding balance of your credit opening at least once, so that the outstanding balance will be zero.)
  • All costs must be presented transparently in the so called Gandalf form . This is a European standard document in which all elements of the credit agreement must be presented transparently. The consumer must receive this document before signing and must be able to take it with him to be able to compare it with other offers.
  • Occasionally the lender or broker insists on taking out debt balance insurance when taking out the credit facility. This has little or no use for you as a consumer because the amounts are relatively small and the term is short (compared to a home loan). Know in any case that the debt balance insurance (contrary to what is sometimes claimed) is not mandatory .

In summary

The risk of a credit opening is that you get a decent sum of ‘easy money’ with it. If you do not get to the bottom of your credit options, lenders will also sometimes point out to you that you can safely spend a little extra time.

The government is doing its best to eliminate malpractice with lending. For example, several credit institutions have already been suspended in the past. The infringements that are punished are of different nature:

  • Bad or misleading information about the rates.
  • The imposition of higher loan amounts than those demanded by the consumer.
  • Mandatory subscription to insurance.

Interest rate also applies to electric bicycle

Borrowing for a car has never been so cheap. With a rate of 0.65 per cent , TinkerBank once again sets itself up as a price breaker in the market. It must be a new car or a second-hand car that is younger than two years. The low rate also applies to those who buy a motorbike, a mobile home, a caravan or an electric bicycle.

Low-rate rate ‘car loan’

In order to enjoy this low rate, you must repay the loan within 60 months at TinkerBank. Other, slightly more expensive, banks and lenders will give you more time. Some even up to 120 (!) Months. By extending the term of the loan you pay a smaller amount per month. However, be aware that you will have paid more interest at the end of the journey.

Loan on installment

Although other forms of financing are possible nowadays, such as a private lease, for example, the ‘ car loan ‘ is by definition an installment loan or a personal loan, but with a specific purpose.

A personal loan has the following properties. Whether these are advantages or disadvantages depends on your own situation and wishes.

  • Clearly. Every month you pay the same amount to the lender. This amount consists of a part of interest and a part of capital.
  • Intermediate or early repayment can be done by paying a fine. This is a fee to the provider because that interest goes wrong.
  • You can not re-enter repaid amounts.
  • When applying for the loan, you also agree on the term.

Apply for your loan online

Nowadays you do not have to go to the bank or to the Brussels Motor Show in Brussels to apply for your loan and enjoy these salon conditions. You can do this just as well online to save time. In this way, you also get all the information you need in a short time, because even though borrowing money mainly costs money in the form of interest, you should do a larger comparison exercise.

The longer the term of a loan, the more interest you will eventually pay. This is ultimately a logical mechanism. But what about the extra costs associated with a (car credit)? In practice, it turns out that lenders link the condition of a comprehensive insurance policy to your loan.

An omnium insurance is not compulsory insurance. A BA car insurance is and does serve to cover civil liability when using the car or electric bicycle on public roads. An omnium insurance is therefore one   additional insurance on the statutory car insurance, which gives you more protection, such as covering damage to your own car, even by your own actions, damage caused by attempted burglary, and so on. Since the car is the guarantor of the loan, creditors expect you to take out an omnium.

However, it is crazy to pay the omnium insurance costs for 9 years for the purchase price of the car. In other words, you have to look for a car-insurance policy whose premium adjusts to the age of the car from the first year. So your insurance premium will systematically decrease.

Interest rate loans

Lenders have different ways to get money. They can offer customers the opportunity to open a savings account and then lend the money on them to others. Another possibility is that they borrow money from investors themselves or, for example, from the European Central Bank. This therefore also costs the lender himself, because they too must repay their loan with interest.

The risk storage

Of course, all lenders run the risk that a loan will not be repaid. To cover that risk, they charge a surcharge for each credit. So they have money behind for non-refunded loans. Sometimes lenders choose not to ask for equal interest for everyone, but to take the profile of the applicant into account in the risk analysis. Here they look at age, employment and type of home. Experience shows that in certain people the risk of payment problems is greater than in others.

The profit margin store

Credit providers are commercial companies that want to make a profit. That is why they charge an extra storage so that they can secure their profit margin.

The marketing and administration costs storage

All costs incurred by a lender are passed on to the customer. This also applies to all costs incurred in the context of marketing (advertising) and administration.

The amount of your loan

The higher the loan, the lower the interest. This is legally required, because otherwise lenders would earn more from higher loans and would probably also advise more often. Consumind Finance can ensure that the interest rate on your current loans goes down . That way you save a lot of money.