Which term is the right one?

The term is the only lever you can choose entirely freely. It trades the monthly instalment against the total cost — and the right answer does not depend on the interest rate but on your worst month.

What the term actually trades

For the same amount and the same rate: the longer the term, the lower the instalment and the higher the total amount payable. This is not an opinion but the annuity formula — you pay interest for longer on an outstanding balance that falls more slowly. What matters is the shape of this curve. Moving from a very short to a medium term lowers the instalment considerably; moving from a long to an even longer term barely lowers it, while the interest costs keep rising. You can make exactly this diminishing relationship visible in the loan cost calculator by running the same amount with several terms.

The limit is your worst month

The common advice “as short as possible” is arithmetically correct and dangerous in practice. A high instalment is only the cheaper choice if you can pay it even in the month when the utility bill, the car repair and the dentist all arrive together. A missed instalment costs reminder fees, default interest and possibly an entry with a credit bureau — that is more expensive than any interest advantage of a short term. So take the instalment from the budget calculator after deducting the safety reserve as your upper limit, not the surplus before it.

• Test the instalment against your worst month, not the average
• Leave the safety reserve out of it
• Include irregular costs proportionally
• Better a slightly longer term than a tight calculation

The way out the law keeps open for you

This decision is less final than it seems. Under § 500 (2) sentence 1 BGB you can repay a general consumer loan early, in full or in part, at any time, and under § 501 (1) BGB the total cost is then reduced by the interest and costs for the remaining term. This allows a calm strategy: choose a term whose instalment is safely affordable even in a bad month, and make special repayments in good months. Any early repayment compensation (Vorfälligkeitsentschädigung) that may be charged is capped for general consumer loans at 1 per cent of the amount repaid — 0.5 per cent if no more than one year of the term remains — and is never higher than the borrowing interest for that period.

The term and the purpose should match

A rule of thumb that needs no calculation: the financing should not run much longer than the thing it pays for. Paying off a washing machine over seven years means paying for something that may already have been replaced. With refinancing (Umschuldung), the same idea applies in a different form: if you lower the instalment by extending the term, you have not reduced your debt but shifted the burden. So in the refinancing calculator, first set the new term equal to the remaining term of the old loan and see what the interest rate alone achieves.