Have you ever taken out a loan? In that case, you will probably know that you had to meet some requirements to get the loan amount. Nearly every bank, be it domestic or foreign, requires credit seekers and applicants to meet conditions so that the individual lender can approve the loan.
We would like to inform you in the following guidebook, who can take out a loan at all, which conditions have to be met and which role Private credit entries and income play.
Who can borrow in Germany?
Who is allowed to take a loan as a German citizen, is regulated by law. First of all, there must be a basic requirement, namely that the borrower is of legal age, ie has reached the age of 18. In addition, there must be no permanent mental restriction, otherwise the consumer would not be fully capable of acting and therefore not creditworthy.
If the loan seeker is under guardianship or care, he can not borrow on his own. In individual cases, however, it is also possible for minors to take out a loan.
However, the Bank may only authorize and pay minors a loan that has been previously approved by both the legal guardians (usually the parents) and the guardianship court. Here, there are relatively strict conditions, so that the loan to minors actually represents an exception compared to the loans to adults.
Incidentally, the fact that the volume of loans raised has risen sharply over the past 12 months is shown by the following statistics:
Good to know: Credit must exist for borrowing It is essential that only creditworthy persons are allowed to receive credit. Put simply, all natural persons who are fully capable of business and thus have reached the age of 18 are creditworthy. By contrast, creditworthiness has nothing to do with creditworthiness.
What is the creditworthiness?
While existing credit is also the most important requirement for banks to lend at all, there is another important aspect. This not infrequently leads to disputes, because unlike the creditworthiness there are in the so-called creditworthiness quite different views, as regards a possible loan.
Another name for creditworthiness is the creditworthiness that banks will soon have to determine for each loan seeker. The purpose of the credit check is to give the banks a picture of how likely a proper repayment of the loan will be.
How do banks determine their creditworthiness?
In order to be able to assess the credit rating, the lenders look primarily at the Private credit information of the person concerned and his income. For this purpose, both persons and companies, which of course can also borrow in principle, often have to file inter alia the following documents:
• Private credit information (usually obtained from the lender)
• Proof of income
• Bank statements showing salary credit
• Balance sheets and profit and loss accounts (for companies)
• Income and expenditure account
Which Private credit entries affect the credit rating?
As mentioned earlier, most lenders assess the creditworthiness of an applicant based primarily on the income and data stored in the Private credit. Therefore, of course, the question arises, which Private credit entries affect the credit rating at all. First of all, there are some personal data of almost every German citizen that are stored in the Private credit, but that does not yet affect the creditworthiness of the customer. These are, for example, data such as:
- First and Last Name
- Current adress
- Previous addresses
- Date of birth
- place of birth
- Different birth name
These data are merely intended to uniquely identify the individual. In addition, however, there are some other facts and data that are also stored about the respective consumer in the Private credit. It is precisely these features that ultimately lead to the rating of the credit rating and the so-called Private credit score.
It is a score that summarizes the creditworthiness of the client. Basically there are both positive and negative Private credit features, but of course, especially for lenders, the negative features are of importance. They show that the creditworthiness of the customer is not very good and therefore there is an increased likelihood of default in the event of lending.
The negative Private credit characteristics can be divided into so-called hard and soft features, whereby the Private credit itself denies in part, that there are some soft features or they would even be included in the evaluation and thus in the Private credit score. This applies, for example, to a more frequent change of employer or simply the fact of living in a certain area.
In the following table we have compiled for you what are the positive and negative Private credit features, while we also want to deal with the somewhat controversial soft negative features.
In particular, the hard negative Private credit characteristics listed in the table are, of course, relatively unambiguous and usually ensure that the bank will reject the loan application without further consideration. This applies, for example, if in the Private credit an affidavit, a reminder or even a warrant is stored. Under these circumstances, the person seeking credit can almost certainly assume that he will not receive credit from a normal domestic bank. In such a case, only so-called loans without Private credit can be an option, since the Private credit information in these cases plays no role for the lender.
What income should be available?
The banks are not only determining the creditworthiness of the customer based on the Private credit information, but income also plays an important role. First of all, it is important to most banks that the loan seeker earn an income that results from dependent employment. In addition, it is usually the case that the loan is only approved on condition that the probationary period has already been successfully completed.
For this reason, many credit seekers must also submit to the lender an indefinite employment contract which, among other things, indicates that the probationary period has been successfully completed. It is true that there is also the possibility for a self-employed person or a loan seeker with an irregular income to receive a loan. However, the chances of success are much lower here, simply because many banks have decided to grant a loan only to persons with an indefinite employment contract and income from dependent employment.
The following statistics show how well citizens in Germany and the EU can cope with bills and credit installments, which is basically their income.
Above all, the following customer groups have, at least more often, difficulty obtaining a loan for the reasons mentioned above:
- marginally employed
What role do the issues play?
On the one hand, income is important to many banks when it comes to assessing the creditworthiness of an applicant. On the other hand, however, the monthly expenses incurred by the customer also play an important role. Only on condition that one puts the income (income) in relation to the regular expenditures, the bank can actually infer whether lending is possible and meaningful.
Using the so-called income and expenditure account, every consumer can at least make a rough list of how high his disposable income is. This monthly disposable income is simply deducted by deducting all regular and monthly expenses from income (net salary) and any other income such as child benefit. Only when the balance is positive, is lending at all to think.
In the following table, we would like to list the most common income and expenses, which will probably also play a role in your personal income and expenditure account.
|Wage / salary / officials pay / pension
||Livelihood (food, clothing, hygiene)
||Car (petrol, insurance, repair)
||Telecommunications (Internet, mobile, landline)
|Income from renting
||Savings rates / reserves
|Income from assets
||Additional costs (electricity, heating, water)
||Leisure expenses (including holidays)
||current loan installments
Based on such a statement of income and expenditure, the disposable income can be calculated very well. For example, if you earn a monthly net income of $ 2,500, and your total monthly spend is $ 2,100, you would have a disposable income of $ 400 per month. This is also the maximum loan installment you can afford. However, experts recommend that you do not use all of the disposable income as a basis for calculating the loan installment, but leave a certain amount of risk for unforeseen expenses. With a disposable income of, for example, 400 euros a month, it is recommended to set a maximum of 250 to 300 euros as a possible loan installment.
Tip: Calculate your free disposable income! Before you apply for a loan, you can already do something yourself to gain more clarity about your financial viability. For this purpose, it is advisable to draw up a revenue and expenditure account to determine your freely disposable monthly income.
What is the monthly loan installment?
How high the monthly credit can be, we have already mentioned in the previous section. First of all, it should be noted that the monthly disposable income is at the same time the maximum amount the monthly loan installment can make. If the credit rate were higher than the monthly disposable income, this would be a first step in a later over-indebtedness.
Furthermore, it makes sense not to choose all the disposable income as a loan installment, but it can happen again and again unforeseen expenses, such as minor repairs, which of course also have to be paid from current income, if you do not spared her want to go.
While there are no fixed values in this regard, most experts suggest that the maximum loan rate should be between 50 and 70 percent of disposable income. Of course, if your disposable income is relatively high and is, for example, € 1,000 a month, you can of course also choose a much lower loan rate on the basis of the desired loan amount. It also depends on the desired maturity, which, in combination with the loan amount and the interest rate charged by the bank, ultimately determines the amount of the monthly loan installment. Over the term, you have the opportunity to reduce the monthly burden at a relatively high credit rate, which can often be extremely useful.
In the following example, we would like to clarify how the monthly loan rate changes when you adjust the term:
Loan amount: 15,000 euros
Interest rate: 3.9 percent
Duration: 36 months
Credit: 465.42 euros
Loan amount: 15,000 euros
Interest rate: 3.9 percent
Duration: 60 months
Credit: 298.75 euros
In this comparison, you can see that you could significantly lower your monthly loan installment on the second loan with a much longer term.
Tip! Therefore, if you feel that a loan can make it relatively tight with the calculated loan installment, simply talk to your bank about extending the calculated term to reduce the loan installment.
Do current loans have to be taken into account?
In the previous two sections, we informed you that not only does monthly revenue play a role, but that spending is also an important criterion by which the bank ultimately determines your credit rating. Among the numerous issues we have already listed are current loans. Of course, you also need to include current loan installments when you compile your monthly total spend. Only on the assumption that a current loan may run for only two or three months, you can neglect the expenditure in the form of the payable loan.
Otherwise, it is definitely important to consider the rates for current loans. Incidentally, current loans are also of interest to every lender, as open loan receivables do not actually increase creditworthiness. Instead, by far the greater part of banks even consider some existing loans to be more critical, even though it would not be a problem to take out a new loan because of the client’s creditworthiness. However, whether or not the lender considers credit in its rating of credit is ultimately up to itself.
Conclusion: Private credit information and income as important credit requirements
In addition to the creditworthiness that every loan seeker must have to obtain a loan, the income and the Private credit information play an important role. These two factors make banks the creditworthiness of their customers. Within certain limits, credit seekers have the opportunity to increase their own creditworthiness.
This is possible, for example, by reducing monthly expenses or by deleting a negative Private credit entry that is no longer eligible. It is important to know the typical credit requirements so that you can respond to difficulties in a timely manner and receive the desired financing.