In Finland, consumption has already increased by four per cent during the year, while income has only increased by about one per cent. In addition, as many as 20,000 households are about to take out repayment free mortgages. What is repayment free, and should we be concerned about this development?
What is repayment free?
Repayment free means a temporary exemption from the repayment of a loan. During this period, only interest and handling costs are paid on the loan. At the same time, the loan period will be extended and the total cost of the loan will increase, as the loan capital will not be reduced during the free time.
Repayment grids are typically between 1 and 12 months and may be paid or unpaid, depending on the type of loan and bank. In most cases, you can apply for a grace period in Goodbank, unless otherwise agreed in advance.
Consumer loan repayment free
In consumer loans, the repayment period is usually one month, and in most cases it is not granted for consecutive months. As an exception to this, for example, you can decide for yourself at Komplett Bank’s Flexible Loan Repayment Rate, as only interest and other fees are payable monthly. In addition, there is no limit to the number of free loan months for a loan. However, before opting for Good Lender or keeping the repayment free, make sure that the total cost of the credit does not become too high for yourself.
The table above shows that a consumer loan with a relatively low interest rate became almost a thousand euros more expensive on a repayment holiday. It is good to note that with higher interest rates, the difference in the total cost of the loans would be even higher. For this reason, you should always consider carefully taking a repayment-free period.
Most of the benefits and drawbacks of rest leave come from the realization that it brings flexibility to the economy, both good and bad. Below we distinguish the pros and cons of installment free.
+ Prepare for unexpected expenses and change in your ability to pay
Firstly, the flexibility of installing-free leave allows you to anticipate sudden changes in your ability to pay and your financial situation, such as unemployment, long-term illness or having a child.
+ Repayment of a higher interest rate loan
If you have taken out a high interest rate loan, then during the grace period you can concentrate on repaying the most expensive loan. Reducing higher interest rates can save you money on interest costs over the long term, with mortgage rates still relatively low in the current economic climate.
+ Increase your wealth with savings
The grace period can be used to increase your own savings. However, it is worth bearing in mind that savings may not be accrued very much during this period, as repayment free will also increase the cost of the loan.
If your savings are close to the heart, you can try comparing different savings accounts in our comprehensive savings account comparison:
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+ Book for relaxation
When the loan does not have to be repaid for a while, the idea may be to relax a bit. Sometimes, it might be a good idea to get a little teary and go on a holiday trip to a remote country where you can forget the stresses of work. Fully relaxed when you return home, you can then step into the workforce and pay off your loan.
– Increasing borrowing costs and loan time
The main disadvantage of repayment gratuities is that they lead to higher interest costs and account management fees as the loan matures. Namely, during the grace period, only interest and other costs are paid to the financial institution, so that the loan capital is not reduced and the total cost of the loan increases.
– Risk of ill-considered consumption and borrowing
Due to the excess cash flow brought by the grace period, the risk of imprudent consumption and borrowing may increase. With more money available, spending it on impulse buys can start to tempt you. However, you should not give in to the temptation, but rather plan carefully what you are going to buy before you go shopping. If there is a need for major additional purchases, it is always a good idea to always try to save the necessary amount of money to purchase the product before you take a grace period.
– Risk of future interest rate increases
Especially with longer-term loans, raising interest rates is more or less risky. It is true that the period of low interest rates has been going on the market for quite some time and the major changes are foreseen. Nevertheless, you should never rely on the market as the situation may change at any moment. For example, in the event of a sharp rise in inflation, central banks would also have to react sooner to raising interest rates.
– Not for everyone: favors those who have paid well
The last downside to install grabs is that they favor people with good credit, who already have good credit history and payment history. For other borrowers, the grant of vacancy will be assessed on a case-by-case basis.
Is It Possible to Apply for Redemption Free?
Now that interest rates are low, long-term loans are especially worth reducing. No one can know for sure when interest rates are going to rise again, so its a good idea to pay off your loan cheap now while you can.
If, on the other hand, you suddenly find yourself unemployed, and know that finding your next job may be the result of hard work, you may want to consider some time off. However, over the longer term, this is not profitable due to rising loan costs. Instead of a grace period, it may be wiser to ask the bank to change the loan repayment plan and, for example, reduce the monthly installment.
When you simply want to quit your daily life and get tired of work, you can leave your loan short for a short time so you can travel somewhere warmer to relax. Remember, however, that increased interest costs are waiting for the homeowner.
In order to avoid having to use the repayment gratuities, it is advisable to choose the loan right from the beginning. By comparing different loans you can find yourself the cheapest option. In our unbiased loan comparison, you can comprehensively compare different consumer loans: