Lending process

The idea of ​​borrowing money usually occurs when an acquisition is to be made for which your own financial resources are insufficient. The reasons for borrowing money are manifold. Thus, private individuals usually do business with borrowed money, when it comes to rescheduling a loan with bad conditions, home and apartment expenses (renovations, furniture, repairs) and purchase and repair of car and motorcycle goes.

The bank loan

  • Lending process
  • credit cards
  • Pitfalls and dangers of credit
    • Cost trap shop window interest
    • Cost trap residual debt insurance
    • Cost trap prepayment fees
    • Cost trap: tying
    • Cost trap to long terms
    • Deterioration of Private credit data by credit request
  • Online or branch credit
    • Conclusion:
  • Bad credit rating
    • Assigned loans
    • guarantee
    • credit without
  • Figures and interest rates
  • The personal loan
  • The personal loan as an alternative
  • Conclusion

 

The bank loan

The bank loan

Individuals usually think of a bank loan first when looking for a loan. This form of loan is still considered the most used form of a loan.

First, the borrower either decides on a branch bank loan or…

… a so-called online loan, which can be done without a personal call. In order to make it possible to compare the different loan offers, bank loans must specify not only the nominal interest rate but also the annual percentage rate of charge.

A branch loan is not only possible at the house bank. It’s worth comparing, and making appointments on site at various consultants in other banks to agree on.

Lending process

    1. Loan application and creditworthiness check

Liable are natural persons and legal persons who are legally allowed to conclude contracts, including credit agreements. Whether this is the case can be demonstrated on a valid identity document or in the case of legal entities, for example on an excerpt from a public register (eg commercial register).

    1. credit check

Both during a consultation in the branch as well as an online loan information on revenue and expenditure and, if necessary, to provide evidence and collateral, so to give a so-called self-disclosure. Thus, the credit institution determines the economic situation of the borrower, and thus the possibility of loan repayment safely. Basis of the examination are current assets and income documents, risk of job loss, purpose of the loan and possibly also previous experience with the borrower. Furthermore, a check is made for any Private credit entries. This procedure is also called scoring. Depending on the result, the level of creditworthiness is fixed and this has a positive or negative effect on the interest rate.

    1. Checking the collateral

For medium and long-term loans, collateral is required by the borrower. As such, for example, cessions, cash collateral, guarantees or real estate liens are recognized and, in some cases, assignments are made.

    1. loan commitment

If credibility, creditworthiness and collateral are tested positively, the loan will be approved. There is a loan commitment.

    1. loan agreement

A credit agreement in this case governs the obligations between the bank and the borrower. Contents of the contract are the repayment term, the loan and if necessary installment height as well as the interest amount. On the basis of this contract, the loan is issued by the bank. He will be closed after loan approval.

This is followed by the provision of the loan.

credit cards

There are different types of loans. These are subdivided according to their terms and their borrowers.

A distinction is made between short- and medium-term and long-term loans, where short-term loans have a term of less than one year, medium-term loans have a term of at least one year but less than four years, and long-term loans have a term of more than four years.

Furthermore, a distinction is made between loans for private individuals and loans for companies. For both private and business customers, credit institutions offer different types of loans and loans.

    • redeemable loan

The rule of the approved loans are the so-called repayment loans. These can be roughly divided into annuity loans and installment loans. Repayment loans are characterized by a permanent reduction in the loan amount due to payments made.

    • Installment loan / installment loan

The installment loan is a loan that is paid in installments. It includes both investment loans for businesses, as well as consumer loans or small loans. The installment loan is the most common type of loan and is mostly used for consumer loans by private individuals. Repayment is made in monthly installments.

    • Annuitätskredit / Annuitätsdarlehen

The annuity loan, as with the installment loan, there is a monthly repayment. Interest accrues on the remaining amount, so that at the end more repayment takes place as interest payment. Consistent rates are clear and easy to calculate.

    • Current account overdraft / overdraft

The current account overdraft is an overdraft facility of the checking account granted by credit institutions, therefore also referred to as overdraft facility.

In order to bridge bottlenecks between accruing payments to be made and cash received, a bank overdraft facility is used as a so-called working capital loan. The overdraft facility, which is the most frequently used by private individuals, is the so-called disposition credit.

Overdrafts have a comparatively high interest burden. Interest rates up to 12% are not uncommon. For this reason, overdrafts, although convenient to use, are only advisable for a very short period of time. The loan amount and the interest are multiplied by the number of overdrafts, which means that the longer an account is overdrawn, the more expensive the loan becomes.

    • credit line

One type of credit whose market share is steadily increasing is the so-called credit line. With this granting of credit, the borrower is provided with a specific credit line in a separate credit account. Interest is only charged on funds actually used / withdrawn. Usually, a repayment of at least 2% of the sum used is common, but special repayments are readily possible. Framework loans have no maturities. The time at which the borrower uses the available money is up to him. For this type of credit is a perfect scoring and good credit condition. Interest rates are slightly higher than, for example, a bank overdraft, but this is offset by the flexibility of repayment and the fact that interest is only charged on actual funds. This type of loan requires a high degree of personal responsibility and discipline in dealing with money.

    • Lombard loan

Under the Lombardkredit means short-term money lending against the pledging of, for example, securities (securities Lombardkredit), goods when the borrower is commercial (commodity Lombardkredit) or other movable property such as jewelry (precious metal Lombardkredit). The granting of a Lombard loan is known through the procedure in the pawnshop. Thus, a Lombard loan is more likely to be considered when a quick cash injection is needed and you have overcome the liquidity shortage in the foreseeable future, since you usually have the pledged asset back, so want to trigger again.

    • Termination loans

A term loan is a term loan in which there are no repayment installments, but only interest payments. The repayment of the entire loan is at the end of the term. This type of loan is usually used as interim financing, for example, until a home savings or a life insurance policy is paid. Precise arithmetic is required to ensure that the interest does not exceed the income of the contracts or the amount of the trigger.

Pitfalls and dangers of credit

Pitfalls and dangers of credit

Basically, it is easy to take out a loan. However, one should always keep an eye on possibly lurking cost traps. Unforeseen costs can make the personal calculation obsolete and make it difficult to operate the loan. In the worst case, this leads to over-indebtedness, if not bankruptcy.

Cost trap shop window interest

Shop window interest refers to the glare of the borrower through seemingly favorable offers. Banks often advertise with remarkably favorable interest rates, but these are usually only valid in the face of a hard-to-reach top credit rating. The borrower only registers with hindsight that he automatically receives worse conditions for credit-related offers. Frequently, these shop window interest rates also appear in flyers, mail letters or online in pop-up windows. Banks also advertise with interest tables and publish them in newspapers or online. However, these tables are not an appropriate basis for the decision for the above reasons. The interest rates listed in these tables are tied to such a high credit rating that they are hardly ever given to a loan seeker. Credit institutions are aware that many customers are not asking about the level of the interest rate, but are primarily interested in whether and when they get the loan. In the search for a suitable loan care must be taken not to be dazzled by particularly favorable interest rates and also to read the fine print notes of the advertisements.

Cost trap residual debt insurance

The residual debt insurance is a popular combination product for installment loans. A residual debt insurance should protect the borrower if he can no longer service the loan in case of illness, unemployment or disability.

However, what sounds necessary and attractive for hedging is often linked to bad conditions. Often the conclusion of a residual debt insurance is not even discussed with the borrower but simply included in the loan package. It fails to point out that a degree is voluntary. In many cases, borrowers with occupational disability cover or term life insurance instead of a residual debt insurance are fully adequate and cheaper.

Cost trap prepayment fees

If the borrower can repay a loan before the deadline, costs can be incurred in the form of a compensation for losses. In the first year, the premature release costs 0.5 percent of the loan amount. At the end of this year, it is 1 percent. This is regulated by the Consumer Credit Directive. It is therefore advisable to choose a bank that does not charge any prepayment fees. In addition, one should inquire about the authorized amount of special repayments. If these are very high and inflexible, the likelihood of being able to reduce the loan easily with special repayments decreases.

Cost trap: tying

For lending, lending is tied to another business, such as the opening of a salary account. While lending transactions are not prohibited when lending, they should encourage borrowers to look closer, as they tend to obscure the actual price. For example, if the coupled salary account is free, the credit is worth considering, but the cost of changing the account should be in proportion to the offer. If account fees are due, this more expensive the loan. In addition, a termination of the coupling product (eg checking account) is not possible without losing the loan if necessary.

Cost trap to long terms

Often borrowers choose a longer term for their loans as this means a lower installment. What is often ignored here are the higher interest rates that are incurred on a longer term. So if you have the option to set higher installments, you can save by choosing a shorter duration with higher installments.

Deterioration of Private credit data by credit request

There are two possibilities for credit institutions to obtain Private credit information in the course of the scoring. On the one hand in the form of a condition request, in which the data is temporarily stored by the Private credit, but not transmitted to third parties, if they also make a request. However, if the bank makes a so-called credit inquiry, this will be stored at the Private credit and communicated to the inquirer in future queries. This will assume that the loan was rejected, although the lending business did not occur at the request of the borrower.

It is very important to have written confirmation from the bank that the Private credit information only sends condition requests and no credit inquiries.

Online or branch credit

Whether you check the account balance, make transfers or even a standing order, more and more people do their banking online. Also to handle credit transactions online is no longer a problem. Pop-up windows are constantly promoting low-priced online loans. But whether on-line credits are really cheaper, or whether it concerns only Schaufenster conditions, can be determined only in the comparison. To decide whether you want to take an online or a branch loan, it is advisable to take a good look at the advantages and disadvantages.

    • Advantages of Online Credit

Behind online loans are mostly established credit institutions, which makes it a mostly serious matter. A significant advantage of online loans is the availability around the clock. The loan seeker is not bound by opening hours here. Another plus of online credit is the speed with which it can be applied for. The loan seeker fills out a loan application online and submits it to the lender, also online. An answer will be given within minutes for an automated test procedure. Evidence and credit documents are sent by post. The loan amount is on average within 5 working days in the account of the borrower.

Contact persons can be reached by direct banks by phone and Via Mail. For branch banks that offer online loans, local contacts are also available.

    • Disadvantages of the online loan

Direct banks do not provide on-site service, which means that personal advice is not possible. Here should be considered individually, how important a personal contact for questions or problems. In addition, additional services (eg residual debt insurance) are offered upon conclusion of the contract, which may not be necessary. Since one usually fills in credit documents alone, such things can not be discussed.

There are providers of online loans, which give on Private credit information and with little regard to the income and high loans, usually at horrendous interest rates. House banks show more care here.

    • Advantages of the branch loan

An advantage of the branch loan lies in the personal advice. An employee takes enough time to talk, explains possibilities and answers any questions. If you have already obtained several loan offers, you can negotiate terms and conditions in a personal conversation. If problems occur, such as repayment difficulties, a personal contact can be more comfortable and helpful than an unknown person on the phone.

    • Disadvantages of the branch loan

Although a personal interview brings advantages, there is also a risk that the loan seeker feels compelled to sign a loan agreement on the spot without inquire about other offers from other banks. So the customer may not get the best possible conditions. Stiftung Warentest also increasingly criticized the quality of consultations in bank branches. Often these are not optimal and technically perfect.

Conclusion:

Whether an online or branch loan is more advantageous depends on your individual preferences and preferences. If you are internet-savvy and willing to compare conscientiously, you can achieve more favorable conditions with online loans. However, if this seems too obscure, who is afraid of losing in the turmoil of offers and appreciates personal advice, he is better served by a branch loan.

Bad credit rating

Bad credit rating

Regardless of whether you opt for an online or a branch loan, the credit rating takes on a high priority. In the course of rating scoring, the individual credit rating is determined on the basis of factors such as income and occupation, financial liabilities, amount, purpose and type of credit as well as existing financial collateral. If no income or substitute collateral is available, a loan is almost impossible. The higher the credit rating, the cheaper the interest rates. This means that if the credit rating is bad, the default risk of the loan is higher, and thus higher interest rates will be charged. In the case of hard negative features such as bankruptcy, affidavit or arrest warrant, no loan is granted, because in these cases, the loan seeker has already insured elsewhere that he is insolvent.

However, there are ways to get credit despite acceptable credit rating on acceptable terms.

Assigned loans

For earmarked loans, such as a car purchase, an item of value is acquired. With this possibly credit conditions can be softened and better conditions can be achieved because the vehicle can be considered as security.

guarantee

Another way to obtain a loan despite poor creditworthiness is to identify a guarantor, who in case of late payment or default, the further payments. In this case, the credit institutions require a guarantee that is enforceable, whereby the guarantor may be treated directly as a debtor without first having to enforce a compulsory enforcement against the borrower.

credit without

An alternative with bad Private credit offer credit brokers, which supports with contact to foreign banks. In Switzerland, for example, the Private credit is not active, possibly entries are not verifiable. However, creditworthiness is also tested abroad, but according to other criteria. So if only a negative Private credit stands in the way, for the credit abroad is an alternative.

Figures and interest rates

Figures and interest rates

    • installment loan

The interest rate trend for a installment loan continues to decline. The APR for a period of 36 months is 4.78%, compared to over 5% in the previous year. With a term of 60 months, the annual percentage rate of interest is 5.11%, compared to 5.30% in the previous year.

The interest rate range for installment loans ranges between 2.49 and 10.49% depending on the creditworthiness

    • Disposition credit / overdraft

The interest rate for overdrafts is currently at an average of 11.21% and remains relatively constant. The interest margin ranges from 4.20 to 16.25% depending on the credit rating.

For discretionary loans, the average interest rate is 9.46%, and the trend is falling. Interest rates range between 4.20 and 12.43 percent. [1]

The figures show that it is not more convenient for borrowers to overcharge the checking account than to install a installment loan to pay it off.

The sum of consumer loans issued to private households at the beginning of 2016 amounts to approximately 178 billion euros, and the trend is rising. The number of borrowers is rising, especially among consumers between the ages of 18 and 20, while people starting in the middle of 20 are less likely to borrow than they were three years ago. [2]

The personal loan

The personal loan

Another way to borrow money is through loans that are not given by a bank but by private individuals. This principle is referred to as peer-to-peer lending (P2PLending) or peer-to-business lending (P2B lending), depending on whether a private person (P2P) or a company (P2B) acts as borrower. This type of loan is interesting for freelancers and the self-employed who, for lack of regular income, find it difficult to obtain a bank loan.

If a larger loan amount is needed, it is unlikely that it will be provided by a single lender. Platforms Offer The Opportunity That Multiple Private Investors Can Invest In A Credit Application. So there are several investors behind a loan. This principle is called crowdlending. The “crowd” (crowd / group) collects funds here to lend it.

For this type of credit, various platforms are offered on the Internet. This is where private loan seekers meet private investors. The provider of the platform acts here as a mediator, bringing both together.

Loan seekers submit a credit application on the relevant online platform and provide information on their credit rating. As proof and protection of the lenders, documents are requested, for example in the form of account statements, pay slips or income-surplus invoice from self-employed persons. Now, as with the lending of a credit institution, a scoring based on the information provided by the person seeking credit. The credit score is used to determine the interest rate of the loan and thus the return that can be achieved for the lenders. The higher the interest rate, the higher the risk, but the higher the potential profit for investors.

They can spread their investments almost anywhere on the portals. So they can invest part of their money in as secure as possible loan applications, but with that they can only achieve a low return, and a part in credit applications with higher default risk because of a lower credit rating, but which earn more interest.

Thus, even poor credit seekers have a chance of getting a loan, as investors are willing to take the risk of higher odds. However, there is the risk of not getting enough investors together if creditworthiness is low.

The personal loan as an alternative

The personal loan as an alternative

Whether a loan from a bank or private individuals, a low credit rating means a higher interest burden for borrowers. The effective interest rates on lending platforms are generally much higher than those for a installment loan with a bank. This can be explained by the fees that accrue in addition to the regular interest (for example, agency fees), which make the credit more expensive. Other additional costs such as the early repayment penalty on the triggering of the loan or an additional handling fee should not be disregarded.

Here it is advisable to compare the costs incurred by the different platforms, as the costs vary here.

Conclusion

Loans from private investors are usually requested by persons who do not receive credit from a bank. Whether the available income comes from a freelance job, or whether the existing employment relationship is fixed-term or permanent, hardly plays a role on a lending platform. For this reason, banks’ unsafe credit applications also have a good chance of being accepted.

For the majority of credit seekers, a personal loan through lending platforms is not the best option. It can not be assumed that these loans are automatically cheaper than loans from banks. With a positive Private credit and corresponding incomes can be obtained with a financial institution conditions. In addition, there are many additional costs such as placement and registration fees, not on. So you may pay more interest on a platform than a bank loan.

For credit seekers with allegedly uncertain creditworthiness, however, the credit by private investors is a real and, despite incidental costs, perhaps even cheaper alternative to the traditional bank loan, as platforms set other scoring priorities.

It is therefore important to analyze the individual situation, to obtain comparisons and to calculate the total costs.