A maturity loan, also known as a maturity loan, is a special type of loan. For example, it is often used when loans are made to civil servants. Final loans usually have a fixed rate of interest like any other loan, and the interest is paid monthly during the term. The decisive difference to a conventional installment loan is the type of repayment: the repayment of the current loan amount is only due at the end of the term.
With a loan of 3,000 dollars, which bears interest at 3% and runs for 2 years, this would mean that interest of 3% is due every month for 2 years; The loan amount, ie the 3,000 dollars, is only repaid when the term expires. A partial or monthly repayment is not made. The final loan, which is basically a simple type of loan, is rarely offered by conventional credit institutions; it is more often offered to employees in open service.
Use of a final loan
Taking out a final loan does not make sense for every borrower. This type of loan is preferably chosen if funds are in possession but are only available later or if it would be unprofitable to make them liquid at this time. So it may be cheaper to take out a maturity loan than to cancel contracts, investments, building society contracts or insurance policies, especially if these involve the costs of early termination.
Advantages and disadvantages of a maturity loan
Due to the one-off, complete repayment of the final loan, the monthly debt service is comparatively low compared to other types of loan, since only the interest debt is initially paid. In addition, the interest rate is usually set over the entire term, which leads to planning security for the borrower, since initially only the interest is paid off. Any financial reserves do not have to be released if this would involve greater (financial) expenditure, but can be used for repayment at the end of the loan period.
Since the loan debt of a final loan is not paid off monthly, but remains in full until the end of the term, the credit risk is equally high over the entire period. It is therefore customary to hedge the repayment. As a rule, this is a home savings contract or life insurance policy that is assigned to the creditors. This security can then be used to repay the loan after the term has expired.
The maturity loan requires a high degree of personal responsibility from the borrower in order to be able to repay the loan in full after the term has expired. To do this, the borrower must take preventive measures in good time, unless he otherwise secures the debt. In such cases, the contribution to the hedge must also be included in the monthly charge from the interest rates in order to clarify the current charge. Due to the increased risk, term loans usually have higher interest rates than other types of loan with regular repayment.