Net loan amount
People taking out a loan are often confused by the complicated calculations. Because not every loan agreement ultimately comes down to the sum the borrower had in mind. That is why it is important that you inform yourself in advance about the net loan amount. This way you keep an overview of the costs and can be sure that you are concluding exactly the loan agreement you need.
What exactly is the net loan amount?
The net loan amount is the sum that the borrower has available after deduction of all loan costs, i.e. practically the amount "in hand". It contrasts with the gross loan amount, where the costs for the loan are still added in full.
The net loan amount is also often referred to as the disbursement amount, since this term is usually less misleading for the customer. With the help of the net loan amount, the customer on the one hand keeps an overview of the real loan amount, and on the other hand can precisely keep the outstanding debt minus costs and interest in mind. Many lenders also offer discounted or optimized repayment terms provided the net loan amount is backed by a certain security or remains as the outstanding balance.
Calculation example for the net loan amount
A simple calculation example will briefly illustrate this and present the advantages of two different repayment modalities:
Mr. X. would like his bank to approve a loan of 10,000 EUR for a new purchase. In addition, interest (7%) and costs for advice and loan insurance amounting to 1,000.00 EUR are incurred.
Interest at 7%: 700.00 EUR
Additional costs: 1000.00 EUR
Gross loan amount: 11700.00 EUR
- Option: Mr. X. now decides on repayment in installments with a term of 80 months. The monthly installment is therefore 146.25 EUR. Now Mr. X. wants to know how much exactly he repays monthly from his net loan amount.
Monthly annuity of the interest: 700.00 EUR : 80 = 8.75 EUR Monthly annuity of the costs: 1000.00 EUR : 80 = 12.50 EUR
Monthly annuity of the net loan amount: 10000.00 EUR : 80 = 125.00 EUR
Explanation: With the help of the net loan amount, Mr. X. can precisely determine the monthly annuity of the individual loan items. For this purpose, the respective individual item is divided by the term, yielding the itemized monthly repayment amount. - Option: Mr. X. wants to repay his loan in as large installments as possible and thereby primarily reduce the outstanding balance. For this purpose, his advisor presents him with a repayment plan in which a larger down payment is made that completely covers the interest and the costs, and he subsequently only has to repay the net loan amount.
Amount repaid by cash payment: 1700.00 EUR Net loan amount: 10000.00 EUR Explanation: Mr. X. has now fully reimbursed the interest and the costs and can thus concentrate on repaying the loan amount.
In such cases, lenders often offer particularly favorable repayment terms. These are usually tailored to the customer's wishes and needs and may, for example, enable early repayment or a temporary suspension of payments within a certain period.
The net loan amount as an indicator and magnitude
The net loan amount therefore has very practical and informative properties for the borrower. While it allows him to keep an overview of the outstanding debt and the repayment plans and options for his loan, it also enables him to more easily assess the real total debt. But not only for organizational purposes, the net loan amount can be a useful indicator for personal and future financial planning.
Especially those who want to make several long-term investments, for example in the construction of a house, investments in their own business or other long- and short-term investments, have a clear overview of their potential creditworthiness and personal financial development with the help of the net loan amount. For this reason, lenders like to use this amount as an indicator to better assess the borrower's personal and individual situation.
While the costs of a loan must be borne by the borrower in all cases, adverse situations of the borrower can affect the net loan amount. This includes, for example, a sudden inability to pay and the borrower's insolvency.
Although there are insurances for these situations that are added to the loan costs, they can occur quickly and pose a risk for both the lender and the borrower. While one party can ultimately rely on a valid contract and applicable law, a borrower often has no entitlement to a payout from a lender, for example.
In summary: What the net loan amount is needed for
On the one hand, it is of course an advantage for the customer to always be informed about his own financial situation and possible capacities. With the help of the net loan amount, a clearer positioning for future plans and investments can also be achieved. The net loan amount is, therefore, in addition to its function as customer information, a fixed figure to reckon with and should be taken into account.
Because while loan costs are usually variable and tailored to the customer's personal situation, the net loan amount is the figure that ultimately must be repaid and on which the final gross loan amount including interest and additional costs is based.
For lenders, the net loan amount is also an important figure, as it allows them to better assess the chances and risks of a loan and to advise the borrower optimally. This way the borrower is much less likely to get into a situation where they can no longer repay the debt at a later date. A benefit that both parties usually keep in mind very carefully during loan negotiations.
Of course, despite all its other advantages, the net loan amount is the natural and logical basis for the calculation of repayment plans, interest and loan conditions. Its size is the decisive factor for the amount of further costs and interest. Many lenders offer their customers better terms if the loan costs are settled early.
Therefore, before concluding a loan agreement, the customer should thoroughly check the intended investment and examine the required financial resources in detail. This way he can not only plan his personal needs more precisely, but also keep a close eye on the costs associated with it for the future.