The loan term
The time over which you need to pay back the loan is what we refer to as the ‘loan term’. At ABN AMRO, the loan term ranges between 1 and 12 years. You can choose the term yourself. What does this mean and what do you need to bear in mind? Loan expert Maaike will be happy to explain.
We sometimes have clients who decide to change the loan term during the loan application process. This can lead to a loan that was already approved now suddenly being denied. I notice that clients find it hard to get their heads around that sometimes. After all, they haven’t changed the loan amount. I explain it to them by pointing out that it is all related to risk.
Let’s say you decide to shorten the loan term. This would mean that your monthly payment goes up. It may go up just a bit too much so that you can no longer afford your loan. This would expose the bank to a greater risk than before, which is why we deny you the loan.
Another thing I come across sometimes is clients with a residence permit. If the residence permit expires before the date of the final repayment, the loan will be denied. In such cases, we ask the client to choose a loan term that stays within the term left on their residence permit.
These examples just go to show how important it is that you choose a loan term that suits your personal and financial situation. This is why I often give clients the following tips:
- Bear in mind the life span of what you are using the loan for
Prevent a situation where you are still paying for something that you are no longer using. If you are taking out a loan for a car that you expect to last five years, choose a loan term of under five years. - If you have less money to spend, choose a longer loan term
This will keep your monthly payment down. And that way you prevent yourself from running into problems when it comes to paying your fixed monthly costs and buying groceries. - If you have more money available, choose a longer loan term
If you do have the money for it, a shorter loan term works out best. It means that your loan will cost you less overall, simply because you will be paying less interest on it.