What is Installment Loan?
Quick Summary
An installment loan is a loan repaid in fixed monthly payments over an agreed term. The payment includes both principal repayment and interest. Installment loans are the most common type of loan for individuals in Germany.
Definition in Detail
The installment loan (also called consumer or personal loan) is a loan with the following characteristics:
- Fixed monthly payment: Constant payment throughout the entire term
- Defined term: Typically 12 to 120 months
- Fixed interest rate: The interest rate remains unchanged for the term
- Annuity principle: Payment contains interest and principal portions
Installment loans are issued without purpose restriction (free use) or purpose-bound (e.g., car loan). Conditions are often better for purpose-bound loans.
Cost Example
| Parameter | Value |
|---|---|
| Loan Amount | EUR 10,000 |
| Term | 48 months (4 years) |
| Effective Interest | 5.99% p.a. |
| Monthly Payment | EUR 229.85 |
| Total Interest | EUR 1,232.80 |
Advantages and Disadvantages
Advantages
- • Predictable, fixed monthly payment
- • Interest rate security over term
- • Early repayment possible
- • Fast processing/disbursement
- • No collateral required
Disadvantages
- • High interest with poor credit
- • Credit check required
- • Credit bureau entry
- • Early repayment penalty possible
- • Long-term commitment
Tips for Installment Loans
- 1Compare multiple offers: Interest rate differences between providers are significant – comparing can save several hundred euros.
- 2Check the effective interest rate: Always compare the effective interest rate, not the nominal rate – only it shows the actual costs.
- 3Arrange early repayment options: Look for the possibility of free early repayment.
- 4Critically examine payment protection insurance: It is often expensive and not always useful.
Frequently Asked Questions
What requirements do I need for an installment loan?
Basic requirements are: being of legal age, residence in Germany, regular income, positive credit (SCHUFA), German bank account. Some banks also require a minimum income level.
How high are the interest rates for an installment loan?
Interest rates vary depending on creditworthiness, term, and provider. Currently, effective interest rates range from about 3% to 12% (as of 2026). Comparing is worthwhile as differences are significant.
Can I repay an installment loan early?
Yes, under EU consumer credit directive, you always have the right to early repayment. The bank may charge a maximum early repayment penalty of 1% (0.5% for remaining terms under 12 months).
What is better: short or long term?
Short terms mean higher monthly payments but less total interest. Long terms lower the monthly burden but cost more interest overall. Choose a payment that fits comfortably in your budget.
Does an installment loan affect my credit score?
Yes, the loan is recorded with SCHUFA. This is not negative – regularly serviced loans actually improve creditworthiness. It only becomes problematic with payment defaults.
Legal Notice
Installment loans are subject to the EU Consumer Credit Directive and German consumer credit law. Lenders must disclose the effective annual interest rate according to PAngV. The right of withdrawal is 14 days. Status: February 2026.