A savings loan is a variant of revolving credit. What is a savings loan? How do you take out a savings loan? What are the advantages and disadvantages of the savings loan?
What is a savings loan?
A savings loan is a special form of revolving credit. You do not repay the loan during the term. You only pay interest. To be able to repay the loan after a longer period of time, you save the borrowed amount through savings insurance. With this savings insurance you can build up capital to repay the loan.
When you take out the loan, you agree on a credit limit. This is the maximum amount you can withdraw. A withdrawal form allows you to withdraw any amount as long as you do not exceed the credit limit.
Take out a savings loan
When taking out a savings loan, an interest credit agreement is concluded for a period of five years. After these five years, the agreement can be extended. In addition, a savings insurance policy is taken out with a term of 15 to 20 years. The structure of your savings policy must be chosen in such a way that you can repay the loan in full at the end of the term with the payment from that insurance.
Savings credit: interest and premium
With a savings loan you only pay interest on the balance of the savings loan you withdraw. In addition to the interest, you pay a savings premium for the insurance.
Advantages of savings credit
The most important advantages of the savings loan are:
- Low monthly costs. You only pay interest and save for the repayment in the form of life insurance
- You only pay interest on the amount withdrawn
- Repayments may be made without penalty
- You do not pay any repayments. You use the savings product for this
- Flexible in withdrawal and deposit
- The interest is tax deductible under certain conditions. You can claim the interest as a deductible item provided the borrowed money is used to improve your home.
Disadvantages of savings credit
- Higher costs because additional insurance is used
- Long term
- The interest rate is variable and increases as market interest rates rise
- The savings loan is not an interesting form of borrowing if you need money for a short period of time
Repaying the savings loan
You may repay the entire borrowed amount in one go without penalty, and then withdraw it free of charge when you need it. You can of course also partially repay or save by transferring a fixed amount from your salary account to your interest credit every month.