A final loan is a form of real estate financing. The difference between a classic repayment loan and the fixed loan, as it is also called synonymously, is the way it is repaid by the borrower.
The final loan is only repaid in full at the end of the loan term, instead of regular repayments during the term.
Differences between classic and final loan
The borrower only pays the accrued interest during the term. If you want to finance a property with the help of such a loan, you must be able to offer the bank a redemption replacement.
For example, the borrower can assign his or her claims to income from life insurance, a home savings contract or an investment fund to the lender.
- As the bank as the lender must be able to access the repayment replacement at the agreed repayment date, it is necessary to coordinate the loan term and the repayment replacement term. The so-called minimum savings are also laid down in the loan agreement.
Who uses a final loan and for what reasons?f
The most common applicants for final loans include people with existing contracts and groups of people or groups of people who are active in the financial markets. The reasons why a final loan is taken out can be:
- The cancellation of existing contracts (building society contracts, life insurance) for financing is often not sensible. For this reason, a fixed loan is taken out and the contracts serve as a replacement for repayment. So you do not suffer any financial losses due to early termination of the contract.
- Some take out such a loan to invest the loan amount in a fund. The hope is that the fund will bring the investor a higher sum than the profit that it will have to pay back to the bank when it is due. If the fund develops negatively, or at least not as positively as desired, the return may not be enough to repay the fund.
- The higher overall burden from a consistently high interest rate and the one-off charge on the due date should be carefully considered by those who are considering this form of financing and at the same time should consider whether regular repayment by monthly installments is not a more sensible and cheaper form of financing .
What are the disadvantages of a final loan?
If you decide to finance yourself with a final loan, you have to expect higher costs than is the case with classic loan contracts. Since the bank has a higher risk over the entire term of the financing, it demands an interest rate to compensate for it, which is always the same due to the omission of repayment rates. Where other borrowers earn a falling interest rate through their installment payments, you pay more for a fixed loan.
Another disadvantage of the final loan is that the borrower has to deal with an extremely high financial burden on the due date, since he has to repay the entire amount with a single payment.