A foreign loan is basically nothing more than a normal loan taken outside Germany. As part of the European reforms, any loans taken in the European currency area follow the same rules. Therefore, behind the term often used in foreign language term foreign credit often hides the less ambiguous term foreign currency loan.
Requirements for a loan
- Differences from country to country
The conditions for a foreign loan, as well as the terms and interest, vary from financial institution to financial institution as well as lender. Since the individual countries and their legislations as well as the EU directives are largely responsible for the basic conditions for granting credit, there are quite small differences in the individual countries.
- Of age and income
It should be noted, however, that within the EU no discrimination against European citizens may occur and thus the equality of all should be ensured in the granting of loans. However, as a rule, the applicant must be at least 18 years old and have a regular income.
- No time limit
In addition, the applicant should have an open-ended employment relationship in order to avoid the risks of insolvency. For the granting of loans, the salaries are divided into different income classes. The higher the income, the better the chances of a loan and favorable conditions.
Conditions and amount of the monthly repayment rate
The respective conditions and the amount of the various foreign credits depend on the banks, the desired properties, the credit rating as well as the lending country. In order to find the cheapest and individually best adapted conditions, loan comparison portals or advisor portals offer themselves. Above all, the adviser portals should be enjoyed with caution, as many try to pull ignorant borrowers in the foreign financial market over the table.
The amount of the monthly repayment installment is calculated from the loan amount granted and the term. A longer term thus means a lower monthly rate, but overall a higher total loan amount. However, with a shorter term, monthly rates are higher, even if the total loan amount is lower in this case. Since larger loan amounts represent a greater risk for lenders, banks must hedge against possible insolvency through higher interest rates.
Credit standing also plays an important role in the monthly repayment role. In the case of Private credit-dependent financing, a good credit rating requires optimal interest conditions, while a bad credit rating affects the conditions negatively.
When calculating interest rates, banks always decide between credit rating and credit rating. The policies of each bank set this once. As a result, different interest rates are calculated for different banks.
Here are two examples:
- Total of the loan: 8000 €
- Duration of the loan: 36 months
- Purpose: Property
- Annual percentage rate: 1.97%
- Monthly rate: € 143.15
- Total amount: 5153.40 €
- Credit costs: 153.40 €
- Annual percentage rate: 1.99 – 8.99%
- 2/3 interest (two-thirds of bank customers receive this credit-based loan rate): 4.99%
- Monthly rate: 149.58 €
- Total amount: 5385.02 €
- Credit costs: 385.02 €
What are the different forms and what should be considered?
In the case of foreign loans, as with domestic loans, a distinction can be made between normal installment loans, annuity loans and bullet loans. The chosen form of the loan determines the type and amount of the repayment. In the case of an installment loan, the sum is reduced, but the respective monthly repayment portion remains the same, whereby the interest is credited only to the remaining amount. In contrast, in the event of a bullet point, only the interest is paid as a monthly installment and then the loan is repaid in full after the end of the term.
By contrast, the monthly installment is the same for an annuity loan. Due to the fixed repayment amount, this form is very user friendly. Apart from the three different forms, a loan also depends significantly on the purpose, the lender, the borrower and the credit protection. However, these factors must be weighed individually in each case.
What are possible pitfalls?
- Dubious mediator
Of course, a foreign loan carries certain risks compared to a domestic loan. This is partly due to the fact that there are many false suppliers and partly because the legislation differs from the German one and thus the consumer may be less well protected. For this reason, foreign loans are mostly arranged by financial intermediaries. They bring with them the necessary expertise and know which foreign financial institutions have contacts with the German Private credit.
- Excessive costs
Especially for Private credit independent loans, they are therefore of great importance. However, the financial intermediaries are washed with every trick and work only conditionally fair. In many cases, pre-costs have already been demanded or paid representatives have been sent by. Therefore, it is advisable to inform yourself in advance in an online loan comparison of the various options.
- Costs due to currency fluctuations
Another pitfall that can arise from a foreign currency loan is rising monthly payments and thus an increased loan amount due to rising exchange rates. Therefore, it is advisable, especially for short-term loans, to consider the overall political and financial situation of the lending country in order to reduce such risk.
What to do if bad Private credit / credit rating?
The Germans take it exactly when it comes to the Private credit. Any even small negative Private credit entries lead to a rejection of loan applications at German banks and savings banks. For example, an unpaid mobile phone bill or a reminder in a dispute with the landlord can be fatal. So if the Private credit score is too low, sometimes only the foreign countries remain as the last alternative.
However, it should be taken into account that some financial institutions also maintain contacts with the German Private credit. Before applying for a loan, it should therefore be ensured that the chosen bank does not maintain such contacts and thus decides independently of the Private credit for or against the applicant.
Furthermore, it should be noted that even financial institutions that do not exchange with the Private credit, if necessary, respond skeptically to the borrower and question the reasons for a foreign loan.
Advantages and disadvantages of a foreign credit
One important concern of most borrowers is, among other things, credit rating. However, this alone does not necessarily justify the taking up of a loan abroad, since a Private credit check can be bypassed, for example, by privately granted loans. The main advantage of a so-called foreign currency loan, however, is that the loan granted abroad does not receive any entry from Private credit and therefore does not play a role for future domestic loans.
However, it should also be borne in mind that a foreign loan means that the borrower moves away from the consumer-friendly EU legal framework and may be confronted with other legal norms.
Current figures and interest rate developments
Due to the current low interest rate phase on the German financial market, a foreign loan is only recommended if the Private credit score or foreign investment is poor, since in this case financing by a loan in the local currency can be facilitated. Otherwise, the conditions on the German financial market are currently almost never before, so that a foreign loan is only recommended after careful consideration of the night and night parts.