Often only loans with a term of 120 months remain in the loan offer. So far, not a single such loan has defaulted.
When communicating with investors, we often hear various myths about long-term loans. I would like to share the top 3 myths.
3 myths about 120-month loans
1. Money frozen for a long time
The average real duration of consumer loans is 27 months, despite the fact that the maximum loan term is 120 months.
Borrowers want the longest possible term to have the lowest possible monthly instalment and increase the loan amount, then often refinance the loans elsewhere or repay them early.
If you need to cash out part of the portfolio, you may sell the loans on the secondary market, whose turnover in the first quarter of this year exceeded 400.000 Eur.
2. Higher interest
A longer loan term is an opportunity to earn up to 57% higher interest for loans with the same risk rating.
For example, a 120-month A-rated loan has an annual interest rate of 11%, while a 6-month loan has an annual interest rate of 7%. B rating – 14% and 10%, respectively.
In the long term, the difference is big – if you invest 200 Eur every month and earn 7% annual interest, you would accumulate 245.418 Eur in 30 years, and if you earn 11% annual interest – 455.865 Eur.
3. High risk
We provide long-term loans only to customers with the lowest risk A and B credit risk scores.
So far, out of 116 issued 120-month loans, not one has become insolvent.
Simas.
