In general, a distinction is made between fixed-rate loans and loans with variable interest rates. Fixed-rate loans are characterized by an unchangeable interest rate. This contrasts with, for example, credit-related installment loans. Here, the interest rate varies with the borrower’s credit rating. In other words: the worse the credit rating, the higher the installment loan interest rate.
Compare loan offers with the installment loan interest rate
If you want to use the installment loan interest rate to compare different loan offers, you should make sure that it does not refer to the nominal interest rate, but to the effective interest rate. The effective interest rate also includes all additional costs that arise when taking out a loan.
The nominal interest rate excludes increases based on a discount or residual debt insurance. In the course of a complete comparison, consumers should consider not only the effective interest rate, but also other criteria such as the total amount due or the term of the loan contract.
The role of the fixed interest period
The current market interest rate, which ideally the consumer regularly deals with, plays an important role in the investigation of the effective interest rate. This is the only way he can estimate whether the installment loan interest rate applied by the lender is proportional. Especially with a low market interest rate, borrowers can benefit from long fixed interest periods. The fixed interest period is the period over which the nominal interest rate is firmly agreed. The following applies: A longer fixed interest rate may initially seem more expensive, but saves a lot of costs in the long term.
The installment loan interest rate and the fixed rate of interest vary depending on the responsible credit institution and the type of loan. Under a conventional loan, the fixed interest period is usually between one and five years. It should be noted here: Whoever agrees to fix an interest rate is generally not entitled to make special repayments.