Anyone who takes out a loan should be careful to pay as little interest over the term of the loan. Banks are currently trying to give as many installment loans to customers. For one reason: you deserve well!
Requirements for borrowing
In order to apply for a loan, you must first have a current income. This must continue to be so high that, after deduction of all monthly expenses for rent, telephone, car, groceries, etc., as well as all other monthly obligations, there is still sufficient scope to repay the loan, including interest.
Credit check on banks and credit platforms
Banks, but also other lenders, require the submission of the current salary certificate as well as the bank statements of the last month and sometimes also a copy of the employment contract as part of the credit check. The reason is that they want to get an idea of the amount of current salaries and expenses, but often loans are only granted if there is an open-ended employment relationship and there is no probationary period.
Collection of the Private credit information
In addition, information is obtained from the Private credit (protection association for general credit protection). In addition to numerous general data on the person of the borrower, this also includes existing or repaid loans from other lenders.
In addition, the Private credit information also contains information on whether there were difficulties in repaying a loan or settling invoices in the past. Negative features may include, for example, dunning notices that have not been objected to, enforcement measures or sworn affidavits about non-existent assets. Whoever has such negative characteristics in the Private credit gets in the vast majority of cases no bank loan and if in an individual case, then only to significantly worsened conditions, that is to high interest rates.
However, if the income is sufficient to be able to carry out the requested loan and if there are no indications from the Private credit that indicate a possible default, a loan can usually be given away without further ado. For this purpose, borrower scoring is subdivided into a so-called risk class, in which, in addition to the amount of income and expenditure, statistical characteristics are also used to calculate the individual interest rate. However, these procedures are not very transparent and therefore often cause confusion as to how exactly the interest rates are calculated.
How is the maximum loan amount calculated?
The amount of the maximum possible loan amount is based on income. Specifically, what is left after deduction of all monthly income expenditures to repay the loan. If someone fumbles over a monthly net income of 2,000 euros and expenses for rent, electricity, car, phone, insurance and food of 1,600 euros, so you have 400 euros left to repay a loan can.
It is important that always a reserve for possible repairs, vacation or other is included. For example, a person who chooses a longer repayment term for a particular loan amount may expect a lower monthly loan installment. On the other hand, short repayment periods have the advantage that less interest has to be paid overall.
Private credit as an alternative to bank credit
- Acquaintances or friends
Often it is much cheaper to take a loan from friends or acquaintances. They often agree with a low interest rate because they receive very little interest from the bank on their money invested. Likewise, the repayment modalities can be arranged individually.
- Beware of credit rip off
However, private lenders, who often advertise in daily newspapers or on the Internet, should be treated with extreme caution. Here often high upfront fees are incurred or it is pushed to the conclusion of a completely unnecessary insurance, which then makes the loan in addition to usually generally higher interest rates very expensive. In some cases, behind the ads but also just dubious business people who act only on a letterbox company.
- Credit abroad
Borrowing abroad is also possible. In the case of the so-called Swiss loans, there is usually no Private credit query, so that it is theoretically possible to get a loan with an existing Private credit entry. Often, however, a considerable commission has to be expected. In addition, interest rates in Switzerland are higher than Germany.
Crowdlending – the modern form of borrowing
For some years, more and more so-called credit platforms, also called crowd lending, are appearing on the Internet. On these platforms, lending between private investors and loan seekers is mediated without a bank intervening. Private investors have the opportunity to earn higher returns than banks can afford.
For many groups of individuals, such as founders or established self-employed, credit platforms are often one of the few serious ways to get credit for their investments, as banks are often unwilling to lend to smaller self-employed. But even for private individuals with a good credit rating, it can be quite attractive to ask a loan facility for a loan and to realize a favorable interest rate on borrowing. The functionality is quite simple.
After registering with the platform, the loan seeker must introduce himself to the investors and describe his project or purchase for which he needs the money. Investors then decide for themselves whether they want to participate in the financing of the project and whether the offered interest rate at which the loan is to be granted corresponds to their risk appetite. If enough investors come together the project can be funded. In this context, the credit platform only acts as an intermediary, which means that investors bear the risk of default.
What else should you look for when borrowing?
Especially if you want to inquire about the individual conditions for borrowing and still do not want to make a loan request, you should absolutely avoid that the potential lender already stores data on the loan request at the Private credit.
This can be extremely negative. If you subsequently ask another bank for a loan, it could interpret the previous loan request as if the loan was declined and also rejects the current loan request. To avoid this, you should be assured that only a condition request is saved, so that Private credit scoring does not deteriorate by the request.
Bad Private credit – What now?
With existing Private credit entries it always depends on what is in the Private credit. If, for example, it is just a dunning notice and the underlying claim has nevertheless been quickly repaid, that is to say has been given a notice of execution, there are still chances of obtaining a loan. If necessary, you should be personally in front of the house bank, tackle the issue offensively and constructively and explain what went wrong and why that no longer occurs. However, if insolvency proceedings are opened or ongoing enforcement measures are initiated, the chances are usually poor. Apart from banks and loan platforms, however, a loan without Private credit information can also be requested from private individuals or abroad.
Current interest rates and outlook
For installment loans at banks, the top providers currently offer interest rates ranging from less than 3% to 6%. Anyone who can provide appropriate collateral, such as car financing by depositing the car letter or real estate financing by registering a mortgage, is much cheaper. But you should not be blinded by this, as the actual interest rate is calculated on the basis of creditworthiness and is often higher.
It is also important that the fees incurred in connection with the lending are kept correspondingly low. An offered residual debt insurance should therefore be avoided as far as possible. Also, the placement commissions levied on the crowdlending platforms can be significant. These vary between 0.5 and 4.5%. For the near future, however, a substantial increase in interest rates on loans is unlikely, so there is no rush to borrow.