Strategies for Gaining Advantage from Negative Interest Rates
Negative interest loans, a financial concept that may seem counterintuitive, are gaining traction in Germany. These loans allow borrowers to repay less than they initially borrowed, offering a unique opportunity for savings.
While traditional banks do not currently offer negative interest loans to private individuals, intermediaries such as Finanzcheck and Smava are stepping in to fill the gap. To qualify for such a loan, one must be of full age, have residence and a German bank account, and possess sufficient creditworthiness with regular income and a good credit rating from SCHUFA.
The German development bank KfW has announced plans to offer negative interest rate loans, initially to banks and companies. However, the extension of this service to private customers is yet to be seen.
It's important to note that negative interest loans are legitimate but offer limited benefits. They require a good credit history and permanent employment, making it difficult for retirees and self-employed individuals to qualify. The loan amounts are typically small, usually around €1,000.
The savings from a loan at negative interest depend on the loan amount, term, and associated interest rates. For example, a loan with an effective annual interest rate of -0.40% could result in significant savings over the loan term. However, these savings are relatively low, around €2 to €4 for a €1,000 loan over 12 or 24 months.
Negative interest loans can be used for various purposes, including debt consolidation, car loans, or purchasing household items like a refrigerator. It's recommended to use a credit calculator to enter the loan amount, term, and purpose of use to find a loan with negative interest.
One potential advantage of negative interest loans is that they can serve as a temporary replacement for an overdraft facility, especially if the interest rates for overdraft facilities are high. However, early repayment compensation must be considered, with the maximum not exceeding 1% of the credit amount for a credit that runs longer than 12 months, or 0.5% for a credit with a shorter remaining term.
Loans with negative interest are often offered online through a broker or a portal. It's essential to compare offers with negative interest rates and their alternatives in a loan comparison before taking out a loan. The broker may charge a normal interest rate for the loan and save the amount the customer saves at the end, or waive their commission for mediating the customer.
In conclusion, negative interest loans can provide a unique opportunity for savings, but they are not suitable for everyone. It's crucial to consider one's creditworthiness, employment status, and the potential savings when deciding whether to apply for a negative interest loan. As always, it's recommended to compare offers and seek professional financial advice before making a decision.
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