In Germany it is no longer unusual to take out a loan. But what do the Germans spend the money on? A current study shows the ten most common reasons for taking out an installment loan.
Thanks to the currently very low lending rates, the loan portfolio for installment loans was over 9.8 billion dollars in March 2019, according to the Best Bank. But why are Germans taking out loans? The banking association commissioned a study on credit reasons from GfK in 2017. The results of this show that vehicle financing plays an important role.
The reasons for taking out an installment loan
The study details the reasons for credit demand. However, the respondents were able to make multiple answers. The GfK study only included conventional installment loans in the credit reasons. Due to the historically low building rates, however, it should be mentioned that construction finance is one of the most popular types of financing in Germany. The dream of owning a home has led to significantly higher property prices, especially in metropolitan areas, which meanwhile are also driving up the loan amounts for home finance.
The ten most common reasons to take out an installment loan were as follows:
Financing a used car
Almost a third of all respondents have applied for an installment loan to finance the purchase of a used car. Your own car therefore still plays a very important role. Especially in rural areas, it is hardly possible to take part in everyday life without a car.
Financing a new car
Car loans for new cars have always been popular and can also be realized on favorable terms. This is due to the fact that the vehicle itself can serve as security and thus make financing extremely easy. In addition to traditional financial institutions, direct banks and car banks are of course also heavily involved in this market.
Furniture and kitchen equipment
The kitchen equipment and the purchase of furniture are also among the most common reasons for borrowing. Even if this may seem surprising at first glance, it still appears to be coherent. Many loans today have no intended use, as offers by well-known banks for installment loans such as that of the LiteSavers Bank show. As a traditional company that has been operating since 1695, the LiteSavers Bank creates additional trust for the consumer. So you can easily apply for an installment loan for purchases there. This applies all the more to purchases that involve a relatively high price and would put too much strain on your own budget.
Debt rescheduling other installment loans
The falling level of interest rates on the credit market means that old loans may still have quite high interest rates. Debt restructuring can often work wonders here and significantly reduce the monthly interest burden. Even if the prepayment penalty should always be considered in this context, the whole thing can still be worthwhile. A lot of people apparently made use of this option in 2017.
Consumer electronics and computers
Consumer electronics and computers are often purchased today by installments. But conventional installment loans are also often a viable way of fulfilling the corresponding wishes as quickly as possible. If you decide to take this route, you should always pay attention to the total monthly load.
Large household appliances
Purchases of large household appliances such as a washing machine or dryer are often just as necessary as furniture and other furnishings. Since such devices are also often at a higher price level, it is not surprising that financing is also used here when buying.
Settlement of the overdraft facility
The overdraft facility as an addition to the checking account is still popular. If you take a closer look at the conditions, it quickly becomes apparent that the high degree of flexibility costs a lot of money. Interest rates for overdrafts are still relatively high despite the low interest rate level. If you want to escape the dispo trap and also want to save interest costs on a regular basis, the decision to reschedule is the right thing to do.
Renovation and relocation
Even if many moves are planned for the long term, it is not uncommon for someone to change their location relatively quickly for professional reasons. If there are no financial reserves, borrowing can make sense for financing.
Clothing and jewelry
As is well known, the upper price limit is open in the areas of clothing and jewelry. It is therefore not surprising that at least 7% of installment loan users take advantage of financing in this area. However, borrowers should always ask themselves whether it is worth paying interest on certain items of clothing.
Vacation is the highlight of the year for many people. In this area too, there is a clear willingness to take out a loan for a good time. The following motto is very helpful for holiday financing: The financing should be paid off before the next potential holiday.
The number of online loans is continuously increasing
The number of online loans has also been increasing steadily for years compared to branch stores. While the share of online loans was still 21% in 2014, it rose to a total of 27% by 2017. This makes online financing more and more normal.
Those who take out an installment loan online also seem to be less likely to opt for residual credit insurance. The share of insurance contracts in the area of online loans was only 22%, whereas in 2017 30% of all installment loans from the branch included a corresponding policy for the loan.
Vehicle finance and construction finance play an important role
At first glance, a closer look at the reasons for taking out an installment loan in Germany does not reveal any surprises. It is not surprising that most borrowers mainly finance cars and construction projects. These are financing projects that require a particularly large amount of capital and a high degree of necessity. It is interesting, however, that debt rescheduling apparently also plays an increasingly important role. Borrowers would like to exchange expensive installment loans or overdrafts for cheaper financing.