For people with low income – such as employees, housewives, pensioners or students – it is often not easy to get a loan. The problem is that there is still enough left over from monthly net income after deducting all expenses such as rent, phone, insurance and weekly shopping to repay the loan, including interest and repayment.
Anyone who turns to a bank, therefore often has the disadvantage. The bank carries out a so-called credit check when granting the loan. On the one hand the monthly net income and the monthly expenses are taken into account and on the other hand data from the Private credit (protection association for general credit protection) or other credit bureaus about the borrower are used. The result of an existing low income is often a rejection of the loan application.
Nonetheless, there are ways for people with lower but not too low income to apply for a loan. If they can demonstrate credibly that the repayment of the loan is possible, for example, there is the possibility to seek a loan from private or at a credit platform on the Internet, the so-called crowd lending. In addition, borrowing abroad is possible. But it is not excluded with a good preparation that the house bank gives at least a small loan.
For purchases, such as the financing of a car or a new home appliance or television manufacturers also offer often very cheap loans for sales financing. Many employers are willing to give their employees a loan for the furnishing of an apartment or when moving, for example, when starting a family or a new generation.
What are the conditions to take out a loan?
- Paymentable customer desired
Anyone who lends a loan wants to make sure that they get back the money they have lent, including the interest. The customer must therefore be solvent and willing to pay, to return the installments. Banks check this as part of a creditworthiness check (credit check). The last salary statements, the employment contract and the account statements of the last month are examined to determine whether regularly receives money, the borrower has a fixed and permanent employment relationship and how high the monthly charges or for rent, electricity, insurance and the current lifestyle are.
- No negative Private credit entries
In addition, the Private credit collects the information stored about the borrower, which provides information as to whether the borrower has already applied for credit elsewhere and how it was reimbursed for any past loans or whether so-called negative features, such as ongoing executions, a requested Insolvency proceedings or the filing of an affidavit for non-existent assets.
Often, standardized procedures are also used, for example in the case of online credit inquiries, where Private credit scoring is usually used for a credit decision. However, these methods are often poorly transparent.
- Scoring and risk classes
With all this data, the borrower is assigned to a risk class. With a higher risk class, there is a higher probability of default, ie the risk that the charge will not be repaid on time or in full, with the result that the loan is rejected. In the case of a low risk class, on the other hand, there are good conditions for a positive credit decision.
- For low income, possibly subsidized loans
Special low-income groups, such as students or apprentices in a master class, also have the opportunity to apply for a student loan from KfW (Kreditanstalt für Wiederaufbau) at the bank. The bank receives a commission for arranging such a loan. The condition is usually that the loan is paid in monthly installments for living up to certain limits and then paid back after graduation or master’s degree.
How is the maximum possible loan amount calculated?
To determine how much credit a borrower can afford, one needs the amount of net disposable income available on a monthly basis, the monthly living expenses, and the duration and interest rate of a loan. If, for example, a monthly net income of € 1,700 is available and the expenses for rent, telephone, insurance, car, groceries and other amounts amount to € 1,400, the borrower still has a maximum of € 300 per month or € 3,600 per year to settle his loan installments,
Depending on the interest and the repayment term, a maximum loan amount can be determined. In many cases it is better to choose a longer repayment term. On the one hand, a higher loan amount can be repaid or, on the other, the monthly burden can be reduced.
Borrowing from private
When a low-income loan seeker applies to private individuals, such as relatives, acquaintances, or private money lenders, who offer their services in newspapers or on the Internet, one also speaks of private credit.
But also loans from the employer for a job-related move or to set up a family are private loans.
By contrast, private lenders, who often act professionally, should be viewed with caution. The lending of the lenders are often associated with horrendous fees. In some cases it was reported that the creditors had to pay off completely unnecessary and expensive insurance before paying any money. Some even try to cheat by claiming money as upfront fees and then just disappearing.
Credit from the internet
- personal loans
In addition to the traditional sources of credit for private individuals, there has also been the opportunity for some years now to contact private investors and investors via the Internet. Here, the loan seeker can present his loan request on a so-called loan platform to thousands of investors, who then decide for themselves whether they want to invest in the lending.
- Crowd lending
This is also known as crowdlending. The crowdlending platforms act as credit brokers and receive a commission after successful financing of a project.
Especially for low-income people, such as employees, housewives, students or founders, it has advantages to turn to such a credit platform, since often acquisitions are financed here, even if the bank would reject them.
- Private loan for low income
However, it is important to have a careful description of your own person and the financing project or acquisition. Without a credit check and usually a request to a credit bureau such as the Private credit but you can not get by on a crowd lending platform. In the case of a registered insubvency proceeding or after submitting an affidavit, the chances of financing are also poor here. Overall, however, the chances of getting a loan are higher than those of a bank.
Investors and investors then decide for themselves whether they want to participate in a financing. It is also up to you to assess the risk of repayment of the loan. On the other hand, investors have the opportunity to earn more money than if they were to invest it with a bank.
What can you do with a bad Private credit?
A reduced Private credit scoring is often not without reason and usually means nothing else that in the past there were difficulties with the settlement of an invoice or credit installment. Here it depends very much on whether and which negative features were registered in the Private credit. For example, once a dunning notice has been issued, but the claim has now settled, should still have good prospects to get a loan. If not at the bank then private. If, however, enforcement measures, bankruptcy proceedings or an affidavit are made, there is usually no possibility to get a loan.
In order to get credit despite the downgrading of Private credit, it usually makes sense to tackle the problem offensively and to explain to the lender what went wrong in the past and why this should not happen in the future. The lender is ultimately concerned with trustworthiness and thus with certainty that the loan can be repaid. The online lending of a bank usually fails because the reduced scoring and the income are used as criteria and an automatic credit decision is made. It is better to turn directly to a consultant to the house bank.
Anyone who can also provide collateral, such as a solvent guarantor or the partner as the second borrower, is even better overall. Similarly, the deposit of a motor vehicle letter as security can be useful when it comes to car financing. With a crowd lending platform, the position of a guarantor may also be advisable. If necessary, you should inquire in advance by phone. Helpful is also the conclusion of a residual debt insurance, which takes over the installments, if the debtor suddenly becomes unemployed or disabled.
Likewise, the loan seeker could also seek a loan abroad.
In the case of the so-called Swiss loans, in which loans from Switzerland are offered through an intermediary, no inquiry of the Private credit data is made by default, but decided on the basis of generally valid business criteria on the lending. The loans are usually much more expensive.
Current conditions and interest rate developments
Bank loans are also quite cheap given the currently prevailing very low interest rates. Depending on the term, the amount of the loan, installment loans are often already available from an annual percentage rate of 3 to 5% annually. When it comes to financing a new car or TV, interest rates on special car loans or consumers are often even lower, as manufacturers often provide significant discounts on interest rates for sales financing.
Those who also have enough security often have the same chance of a cheap loan. The loans for home or housing finance are currently at a ten-year fixed interest rate at 1-1.5% per annum when lodging a mortgage. In addition, a short-term rise in interest rates in Germany is not expected. It should be noted, of course, that when calculating the individual interest rate, the personal credit rating is an important aspect and thus may be higher in individual cases. Factors such as the size of the loan, the repayment term and the bank’s profit margin also play a role.
Also in crowd lending, the personal credit rating is taken into account in the interest calculation due to the classification into a certain risk class. The interest rates may therefore be higher or lower than at banks. However, most online lending platforms charge a commission for their agency services, which is also borne by the borrower in addition to the interest charge. The commissions are payable only once, but in terms of amount with an average of 0.5% to 4.5% not insignificant.