The no-processing-fee loan is not just the norm, but the only form of credit allowed. The admissibility of a processing fee to be paid in addition to the nominal interest rate was disputed in court for several years before the Federal Court of Justice definitively prohibited its collection in May 2014. It had already been clearly stipulated that no fees could be charged for a rejected loan application and that the processing fees had to be taken into account when calculating the annual percentage rate of charge.
The benefits of the loan with no service charge for consumers
The risk that credit seekers would be misled by a visually low nominal interest rate was low due to the mandatory indication of the annual percentage rate of interest, including the previously tolerated processing fee.
The disadvantage by levying one-time costs of processing the loan application made rather especially in case of early termination of credit as well as unscheduled noticeable.
As the bank did not pro rata reimburse the calculated processing fees in this case, the effective interest rate of the loan increased as a result of early repayments. The borrower may prematurely repay consumer credits at any time prior to their actual maturity, after which the bank may charge them prepayment interest.
However, special repayments that only cover part of the outstanding amount are only possible if the loan agreement contains a corresponding clause. For the borrower, it is advantageous if the loan is associated with the possibility of a flexible repayment without any processing fee, so that he pays attention to the loan agreement and the interest on the corresponding contract clause.
Banks compensate for the abolition of the processing fee by higher interest rates for short maturities. That the processing of a loan application is associated with costs, is out of the question. The banks calculate the processing costs in the interest rate charged by them.
With a short term, they must distribute the award costs to a few installments. It goes without saying that many banks charge a higher interest rate for shorter terms than for average repayment periods.
All you have to do is enter the nominal interest rate and APR and, in addition to the interest, you may not charge a one-time processing fee. Apart from short credit periods, the interest rate usually increases even with a long repayment period.
The reason for this, of course, is not the distribution of the processing costs on the individual installments, but the statistically increased risk of default, which occurs with a term of more than six to seven years.
Why do financial institutions continue to solicit credit without a processing fee?
Although the separate calculation of processing costs for lending is clearly no longer permissible, several banks continue to actively promote non-processing credit. While they do not promote a property that the product does not possess, they may mislead the consumer with their advertising.
If he is unfamiliar with the legal rules of lending, he may get the impression that refraining from charging processing fees for consumer credit is a particular achievement of the bank soliciting it and not a fundamental legal claim.
It is therefore important that consumers are aware that any domestic financial institution may lend to individuals only without charging any processing fees and can not be deterred from making a credit comparison by advertising. Depending on the duration and the amount of the loan, this often indicates that different financial institutions are the cheapest.
Depending on the bank, the interest calculation for a loan without a processing fee is made with a single or a credit-based interest rate for all borrowers. The latter is advantageous for loan seekers whose credit rating is rated above average.
With average or below-average creditworthiness, however, a loan without a processing fee with identical interest rates for the same term is cheaper for all bank customers.
5 tips on credit with no processing fee
1. Compare several providers
The most important tip is to compare, because there are big differences in the credit of different credit institutions and the biggest part of the cost comes from the amount of interest that has to be paid for this loan. It is best to compare the annual percentage rate.
Some banks are calculating very close and that for you. You only have to pay comparatively low interest rates there. Positive are all offers in which no processing fee is to be paid.
If the interest rate is relatively low, a higher amount of credit can also be raised and approved. Thus, one can make larger investments.
2. Pay attention to the term
It is important that a reasonable term for the loan is chosen without any processing fee. If the maturity is longer then lower repayment amounts will have to be paid and the loan amount may be higher or the corresponding rate is correspondingly lower and thus this longer term will allow more liquidity for the budget.
It is recommended that there is still a reserve for unplanned extra expenses during the loan term. This should be taken if necessary longer terms in purchasing. With a loan without a processing fee, you can save many additional costs.
The money can be budgeted instead for the investment. In the case of major investments, terms of between five and thirty years are often created.
3. Have all documents ready
The documents that should be available for lending are a proof of income and documents on collateral. Proof of income must be sufficient. Usual are copies of the salary arrivals of the last three months. Purchase contracts for real estate or vehicles can be considered proof of the collateral offered.
Thus the creditworthiness can be confirmed. The banks check the submitted documents and after successful examination there is nothing standing in the way of the requested loan. If possible, all documents should be ready so that the loan application can be processed quickly.
For an online loan, the documents can be submitted via the Internet. Fast editing is possible.
4. Online loans are to be preferred
Information about cheap credit is available on the internet. Fast lending of cheap loans is possible online and many borrowers therefore prefer online loans. For the credit institutions, there are some advantages in this way. For example, fewer branches need to be maintained and thus a more cost-effective personnel structure is possible.
These banks pass on the saved costs to the customer and thus cheaper loans are possible. An online loan includes all the advantages that a conventional loan can have and, moreover, it is possible to find out more quickly online with this type of credit and thus better identify the cheapest provider.
5. Keep an eye on the costs
In any case, hidden costs should be considered. For example, there are banks for which residual debt insurance is mandatory and which could result in significant costs. This insurance is not essential. If you do not need this insurance, you should switch to another bank. There are also banks that require a prepayment penalty for special repayments. Such costs are usually not insignificant and should be avoided.
It is therefore better to pay attention to such costs before concluding a contract and to avoid them. A transparent online loan with no processing fees and hidden costs is preferable in any case. Here are clear and simple agreements in the background and the resulting costs can be quickly calculated.
With a loan agreement that is consistently cheap over the term and has, for example, rates in the same amount, it is best advised. A loan without a processing fee is therefore particularly recommended and with appropriate preparation with the documents this can be quickly allocated.