If you want to make a certain payment or purchase, but do not have sufficient financial resources, you can take out a loan or credit. You then pay your payment or purchase in one lump sum and then pay off the loan in monthly installments. However, you have to pay a certain interest on the money that you have borrowed. How long it takes to pay off a loan depends on several factors.
The type of loan
To be able to make a purchase or payment without using your own resources, you can take out one of the following three loan forms.
The term of a mortgage loan
The purchase of a home is usually financed through a mortgage loan. A mortgage is often taken out through a bank or mortgage provider for a period of thirty years, so that you can gradually repay the loan amount. If the mortgage is repaid in full during this period, then this period is also recommended with a view to the mortgage interest deduction. You pay off the borrowed money in 30 years by means of a linear or annuity mortgage. Furthermore, you also, under certain conditions, opt for the accelerated repayment of a mortgage by using the tax refund for this. The amount of the loan and the term will then decrease faster, although penalty interest can sometimes be charged.
Calculate the duration of a loan
If you borrow money from an official bank or lender, the loan conditions will be laid down in a loan agreement. So you know exactly how long the duration of a loan will be The duration of a revolving credit can, however, vary, for example because you have withdrawn money in the meantime.
- With a linear repayment you calculate the term by dividing the total loan by the repayment.
- With an annuity repayment you initially also assume a fixed term, provided that you do not withdraw money in the meantime. The term can then also be calculated by dividing the total loan by the repayment. With a cash withdrawal, however, you must perform this calculation again.
Which loan do you choose?
A linear repayment will generally be a bit cheaper. However, with a mortgage you have to deal with a long-term obligation and high borrowing costs. Before you start borrowing money you need to be well informed about the repayment options, accelerated repayment and the period in which that is possible.
For the repayment of borrowed money, rules have been drawn up that relate to:
- in how many months your full loan must be repaid,
- the term of your loan,
- the monthly installments,
However, other payment conditions may apply per lender, but also per loan form. The borrowing objective and the borrowing conditions determine to a large extent what is possible.
Term of a loan
It is certain that a loan must be repaid at a certain moment. With a personal loan the duration depends on the loan target. The duration of a renovation loan will therefore be considerably longer than that of a loan with which you want to finance a used car.
A lot of lenders have a minimum duration of six months to a maximum of 144 months. The borrowing objective is often decisive together with your negotiating qualities and your familiarity with a financial institution.
The term of a loan directly affects your monthly loan costs. However, faster repayment is permitted in some cases without penalty, but in other cases you will have to pay extra in the case of early repayment. The terms and conditions can also vary greatly with every lender.