If you need money and decide to borrow, you have to consider more things when you choose between offers. Basically you need to decide what amount you want to pick up and how much time you want to repay, and what interest (and other extra costs) you are willing to pay for the loan.
What to consider when borrowing?
While the loan amount and the maturity can be freely chosen within certain limits, the bank will bid on the rate of interest, so the room for maneuver is limited to selecting the most favorable offer.
Of the factors listed above, of course, the easiest way to answer is the amount of loan you need, ie how much money you need. Of course, in order to make a responsible decision, it is also worthwhile to think carefully about the amount of the loan, and to minimize it as much as possible. In this article, however, we are now dealing with one of the other two factors – the term – although, as you will see, indirectly this is also related to interest.
What is the maturity?
The maturity shows how long the loan will be repaid, ie the debt will be reduced to zero by the end of the chosen term. During this period, interest is also payable on the debt still outstanding. That is, the longer the maturity, the higher the total repayable amount. In fact, it expresses that the more you spend your loan money, the higher the price you expect to pay for the money you borrow, and you have to pay this price through interest.
During the term, the installment must be paid at regular intervals (in most cases on a monthly basis), which consists of the interest and capital repayments accumulated so far. The installment is set so that its amount is constant – at least until the interest rate changes – and just cover the amount to be repaid on the occasion. As a result, while interest rates have to be paid at a higher rate at the beginning of the term, and only a smaller proportion of the principal is repaid, this ratio is increasingly reversing over the term.
Based on this, it may already be seen that the maturity not only determines how long the debt has to be paid, but also how much to pay. In addition, not only the total amount, but also the monthly repayment rate depends on the maturity. The longer the maturity, the higher the total repayable amount, but the lower the monthly repayment obligation. It also follows that twice as long maturity does not result in half the repayment installment, precisely because of the payment of interest. Increasing the maturity reduces the amount of monthly repayment to a lesser extent.
What is the maturity of two million forints?
Now that we have clarified the background for answering, let’s look at the question in the title: what time frame should you take two million forints? It is worth starting with the monthly installment of the loan, ie the amount of regular repayment of the loan. This depends on the duration of the loan and the interest rate on the type of loan.
While home purchase rates can be as high as 3% in today’s market situation, there will certainly be over 10% interest on a personal loan, so the installment will be higher with the same maturity. In any case, the term must be chosen in such a way that the monthly budget can be repaid as regular expenditure. On the other hand, you should choose the shortest term to minimize the total amount to be repaid. A further aspect is that the interest rate should be as long as possible during the term, even during the entire period, thus avoiding the risk that the installment will increase in the future.
For a sum of two million forints, a term of about 5 years may be ideal – taking into account the above and depending on the individual’s life situation. With a 5-year maturity, with a 5% fixed interest rate, the monthly installment will be under 40,000 forints over the term. If you want to get a lower installment, you can reduce your installment by up to $ 30,000 with a 7-year maturity, but it also means you will have to repay more than $ 100,000 more because of the longer maturity.