For prospective borrowers, it is usually not easy to recognize the differences between a modernization loan and a traditional installment loan. In fact, there are DIFFERENT TYPES OF INSTALLMENT LOANS here.
Although a modernization loan is a kind of installment loan, there are some special features here. For example, such a loan is earmarked and is only given to owners.
In fact, a modernization loan is really nothing more than a low-interest installment loan. However, this is a dedicated loan. This means that the credit defined only for the modernization of the home and nothing else may be used.
Accordingly, although one loses a lot of flexibility here, for the benefit of borrowers, precisely because of the appropriateness of a cheaper interest rate, so that here a lot can be saved.
The banks usually award loan amounts of 10,000 to 50,000 euros for a modernization loan. Some banks even go up to 80,000 euros here.
If a higher sum is required, usually a mortgage lending is ideal. This is the case, for example, when a complete overhaul of an old building is planned. However, it is often the case here that a land register entry takes place and that the deposit of equity capital is necessary.
In addition, the banks only grant a modernization loan to owners of a property. It can also be a condominium or a house, where the most diverse modernization measures are to be carried out. The reason for this is quite simple: Tenants are allowed by law to make any structural changes to an apartment or a house. Furthermore, many banks behave in such a way that the property may be used privately and not commercially.
A modernization loan can be made with or without a land register entry. This depends on the amount of the loan amount and, for the most part, on your own creditworthiness.
Tip: The various modernization measures are, for example, funded by the bank. This is especially the case if it is planned to make the home more energy efficient. Bank awards favorable loans and investment grants. However, the application is not made directly there but through the bank granting the modernization loan.
Equity is usually not required. Depending on the creditworthiness, however, it may well be that the bank demands about 20 to 30 percent equity from the targeted loan amount.
Classic installment credit
A classic installment loan is not earmarked but is spent at leisure. For example, it does not matter if you are an owner or a tenant. A land registry is usually not common.
Unlike a modernization loan, a classic installment loan is not earmarked. This means that the loan amount can be freely used as desired. However, the interest here but also slightly higher.
Installment credits are usually given in a variety of heights, making them suitable for smaller as well as larger purchases.
However, there are also special forms, such as the car loan. Again, this is a conventional installment loan, but as the name implies, this loan is only given to buy a car. Accordingly, it is then again a purpose-based loan, which shines with a cheaper interest rate. Often the banks here use the car as security. This means that the vehicle remains with the bank until the borrower has fully repaid the loan.
Installment loans can be used by a wide variety of people. This means, for example, that these loans can be used not only by real estate owners but also by tenants. This contrasts sharply with a modernization loan, in which this is handled exactly the other way around.
Land register entries usually do not occur with a classic installment loan. However, it is quite possible that, depending on the creditworthiness of the applicant, the bank will demand collateral. This can be, for example, a paid-up property, a home savings contract or even classic life insurance.
The repayment modalities are usually the same for a modernization loan as for a classic installment loan. The constant monthly installments are paid until the loan is fully repaid.
The repayment of a modernization loan, as well as a classic installment loan, is usually handled the same.
Among other things, the loan amount, the term of the loan and the monthly installments were recorded here in the contract. The borrower pays the loan easily in constant monthly installments; and until the loan has been fully repaid.
Accordingly, these two variants are very clear loans, in which no surprises are to be expected.
For both types of loans, some banks offer special services, such as suspending a monthly emergency rate.
With a modernization loan and a classic installment loan, many banks offer a wide variety of special services. In addition to the possibility of special repayments, for example, this also includes a variable repayment rate and the suspension of a monthly installment in an emergency.
The latter is useful if a large sum is suddenly needed in a month, which is the case, for example, when you need to buy a new washing machine or a new refrigerator. Here it is then simply agreed with the bank that, as agreed in the contract, no rate is paid in the desired month. On the one hand it is possible to purchase the required equipment and on the other hand, one does not get into financial difficulties.
A variable interest rate ensures that the repayment can be increased or decreased as desired. For example, a salary increase increases the repayment and thus the loan amount can be repaid faster, which saves a lot of interest. If, on the other hand, it is foreseeable that the receipts tend to decline, the repayment installment can also be lowered.
If special unscheduled repayments have been agreed in the contract, it is possible once or several times a year to make such a payment up to the amount stated in the contract. Here, too, the loan amount decreases, so that the interest burden also decreases. If such an agreement has not been made and one nevertheless wishes to make a special repayment, the banks require a so-called prepayment penalty. This fee is due to lost interest income. In such a case it is absolutely advisable to calculate well in advance whether a special repayment is still worthwhile. If the fee is too high, it is better to forego such a payment. However, if that is not the case, a special repayment can be confidently made.