The term credit is derived from the Latin word “credere”, meaning “to believe”, and “creditum”, which means “entrusted, which is based on good faith”. It generally refers to the transfer of cash or book money from a lender to temporary lending to the borrower. The borrower undertakes at the same time to repay in the future and often also to pay interest.
The path from the application of a borrower to the payment of the loan
- An example for clarification:
- Which special forms / sub-forms of loans are there?
- Possible pitfalls in loan agreements
- What can be done with negative Private credit or bad credit rating?
- Current figures and interest rate developments for loan offers
The path from the application of a borrower to the payment of the loan
In order for the loan application of a potential borrower to be decided positively, a number of prerequisites must first be met . Such conditions include the following:
- Over 18 and German citizenship
First of all, the applicant must be of legal age, which means that he must have reached the age of 18. In Germany, citizens are only fully able to take legal action at this point in time, with the consequence that legal contracts can be fully effectively concluded. In addition, the applicant must have a main residence in Germany and have a German bank account.
In addition, it is important that the applicant is not in the probationary period of his employment, so he must be in employment for at least six months with his current employer. Why? Since the notice periods are shortened within the probationary period and thus represent a great risk for the lender. In addition to the exclusion of the probationary period, there is also the condition that an indefinite employment relationship must be present. Some lenders also allow a temporary employment relationship, but this should apply for the duration of the loan.
The lender requires the presentation of proof of income so that it can be understood that the claimant also has enough income to repay the loan. In addition, some lenders also require you to submit account statements that fully track revenue and expenses over a three-month period.
Another requirement is trading on your own account. What does that mean? This requirement implies that the applicant uses the loan for himself and pays for the resulting costs. This is to prevent the applicant from borrowing money for a third person who may not be financially able to make repayments in accordance with the contract.
- No negative Private credit entries
Finally, it is checked whether the applicant has negative Private credit entries. The Private credit provides an insight into the personal payment behavior and the personal level of indebtedness. The score is calculated by the Private credit, which allows the lender to assess whether the claimant can repay the loan. For example, defaults on the Private credit have a negative impact.
After examining all these conditions and making a positive decision by the lender, the conclusion of the loan agreement and the loan amount are made.
An example for clarification:
Suppose the applicant needs a new car and wants to finance it with a loan. The prospect now indicates to a potential lender the loan amount over which he wants to complete financing with the help of a loan. Let’s say he needs $ 10,000. The lender now takes a close look at the conditions described above and examines their existence. Depending on the period for which this financing is to run, the interest rates will also decide . In the present case, we assume a loan period of 60 months. This yields interest rates of around 2.49%.
The lender will be able to disburse a loan amount of 10,000.00 euros. Now he has to pay installments of € 178.00 for 60 months, so that ultimately, including interest, a total amount of around € 10,800.00 will be repaid .
Which special forms / sub-forms of loans are there?
The type of loan is the basis for the availability, purpose and forms of repayment of this loan.
The most common form of a loan is the loan, which is usually concluded with a repayment agreement between two parties. There is also the form of cash credit. Here, a credit line on the personal checking account or a separate account, such as a disposition credit. There is also mortgage lending, which is one category of the loan. This loan is taken over a very long period of time, usually over 30 years. To secure this loan, liens are granted to the lender. There is also the possibility of an investment loan. In this case, objects of fixed assets are financed. It can also come to a working capital loan. These are cash advances intended to finance working capital. Further cash advances are goods financing or cash advances. Another form would be the borrower’s note loan.
Possible pitfalls in loan agreements
The currently very low interest rates currently make the taking of a loan very attractive . Nevertheless, one should always be aware that there is a risk of hidden costs and information gaps. There are a few pitfalls that can be encountered when concluding a loan agreement.
First, many lenders take a fee for early repayment of the loan amount, this is called prepayment penalty. While this lender’s claim is still capped, it can be required of the borrower. The consequence of this limitation is also that the processing fees have been increased by some lenders.
Upon termination of the loan agreement, these paid processing fees will not be refunded. In addition, combinations of loan agreement and residual debt insurance are not worthwhile. Caution should be exercised on this topic.
When taking out a residual debt insurance, no insurance premiums will be refunded and an immediate period of notice usually does not exist either. In addition, one should always compare the offers of different lenders, before deciding.
What can be done with negative Private credit or bad credit rating?
Everyone is well aware of this or a similar situation: it is urgent to wash the clothes and just then the washing machine gives up its spirit and actually there is no money for a new one. A (small) loan could be the solution here. The way leads to the potential lender – who informs after a short time that the loan application must be rejected because of a negative entry in the Private credit.For many borrowers now the hope for a cash injection is lost. A negative Private credit entry is rejection number one in Germany.
However, there are ways to still get a loan:
First you could let a guarantor take part in the loan agreement. This means that a third party runs the risk of having to pay the loan agreement rates if the borrower is unable to pay. However, a better alternative could also be the direct lending of money from the guarantor. In addition, could lend to a life insurance. Finally, there is also the possibility to conclude a loan without Private creditauskunft. This option is open to those who have a permanent job and a regular income but are still burdened with a negative Private credit entry. Such a loan is granted if the applicant can demonstrate sufficient attachable income. The lender is usually a foreign bank. Another option would be a loan with the help of private investors. There are many private lenders who want to promote projects and help fulfill desires. The return is rather subtle. Of course, private lenders want to see collateral, for example with the help of a car.
Current figures and interest rate developments for loan offers
Interest rates on loan agreements change almost daily. This applies to private loans, in particular for mortgage lending contracts. Currently, interest rates are low, especially in the area of mortgage lending. This state of affairs is shaped in particular by the monetary policy of the European Central Bank . This should strengthen the economy within the eurozone. The currently prevailing low interest rates are intended to encourage consumers to conclude loan agreements – in whatever form. At the moment loans are cheaper than ever.