For employees with a fixed employment relationship, there are various possibilities to take out a loan. In addition to being able to borrow from a bank, employees can also seek a personal loan. In addition, it has been possible for some years to use credit platforms on the internet (crowdlending) to obtain a loan.
Requirements for borrowing
- Borrowing from private
- Crowd lending
- What is the maximum loan amount?
- What to do with bad Private credit?
- Current conditions and interest rate developments
The prerequisite for borrowing, however, is usually a permanent and permanent employment relationship with a regular income. Salaried or short-term employees have a much harder time borrowing.
However, when the income is high, a permanent contract of employment, and no other loans have been taken, employees often have much easier access to credit than other groups of people, such as retirees, the self-employed, students or the unemployed.
Requirements for borrowing
- Sufficient creditworthiness
If employees contact a bank or savings bank to apply for a loan, they will first conduct a credit check. The credit check is usually a standardized so-called procedure whereby the bank determines the likelihood that the money lent under the loan plus the agreed interest will be repaid on time. For this purpose, it collects various information from the borrower itself and from external information services such as Private credit or Creditreform, which, among other things, store information about whether the borrower has already taken out other loans and whether payment difficulties have arisen in the past.
The employee as a borrower must prove his salary as part of the credit check, for example, by presenting the last 3 salary certificates and a copy of the employment contract. On the other hand, he must prove that his salary is sufficient to repay the loan installments. This is usually done by presenting the bank statements, on which the regular debits or transfers for rent insurance and other regular obligations can be seen.
- Impeccable Private credit
From the Private credit the bank receives a so-called borrower-scoring, which is to make a statement about whether the employee, who applies for the credit, is creditworthy. Based on the data on existing bank accounts stored at Private credit, loans already taken or requested in the past, as well as so-called negative features, such as dunning or enforcement orders issued against the borrower or disclaimer of sureties, a value shall be determined which would oblige the borrower assigned to certain risk classes. The assignment to a high risk class means that there is a higher likelihood of problems with the repayment of the loan, with the result that the loan application is then rejected. By contrast, a low risk class means that the employee is considered creditworthy and has good prospects of obtaining a bank loan.
Borrowing from private
Private borrowing means the employee turns to private individuals to get a loan. They can be relatives or friends, but also private money lenders, who often advertise their services in newspapers or on the Internet.
Sometimes employers are willing to lend money to their employees, for example, when a family has been established and therefore has to purchase or move to a larger apartment.
Borrowing from private, professional money lenders should always be viewed with caution, as these are often dubious deals. Often, the lending is associated with frivolous high fees and interest and often the borrower is also forced to complete unnecessary insurance with considerable premium payments.
In some cases, they are simply cheats who first ask for an advance payment and never reappear.
For some years, the so-called crowd lending is on the rise. Through a lending platform on the Internet, investors and investors who are willing to lend money for a reasonable return are brought together with individuals or companies that can apply for a loan for a purchase or a specific project. The credit platforms act as credit intermediaries in this case and receive a commission when a loan agreement is concluded.
Employees who turn to a credit or crowd lending platform on the Internet can introduce themselves to investors and describe what the money will be used for. However, even when applying for a loan via a credit platform, a credit check is carried out, in which the operators of the platform obtain information from Private credit or Creditreform.
However, the chances of getting a loan on an internet platform are much higher than with a bank. Only if a petition for bankruptcy has been filed or enforcement actions against the borrower are in progress are lending excluded. However, investors decide for themselves whether they want to participate in the financing and at what rate they are willing to lend their money. In addition, enough investors have to come together to guarantee financing, as more and more investors finance a project together. However, employees with a regular income and no negative entries in the Private credit have a good chance of successful financing via a credit platform, depending on what the loan is to be borrowed for.
What is the maximum loan amount?
To assess how much credit the employee can take three factors are crucial. On the one hand the amount of income and on the other hand the amount of monthly credit and the amount of current expenses.
Overall, the employee’s net income must be high enough that all the cost of living, including rent, insurance, phone, groceries and, in addition, the monthly rate, does not exceed existing income.
So if someone has a net income of 1,800 euros and has monthly expenditure of 1,600 euros before borrowing, theoretically 200 euros per month or 2,400 euros remain available, which can be used to repay the loan. The amount of the loan would be limited.
What to do with bad Private credit?
A not so good Private credit means above all that there have been problems in the past before. Therefore, before taking out a loan, the first question is how much credit you can actually afford. In addition to the monthly expenses for rent, telephone, insurance, food and other obligations, when borrowing, the monthly loan installment is added.
The sum of all expenses must not exceed the regular income. Loan amount and duration should therefore be chosen so that the installments can be conveniently paid.
For example, to convince a lender to lend despite being registered with Private credit can, for example, help with the provision of collateral. For example, when it comes to car financing, for example, the car letter can be deposited as collateral. For example, some crowdlending platforms now also offer special car loans, where new cars can be financed against deposit of the car letter. The position of a solvent guarantor can also encourage a lender to make a positive credit decision, even if it is a borrower with a lower credit rating. If, within the crowd lending platform, the position of a guarantor should not be provided by default, it may help to inquire in advance by telephone if this is possible. Likewise, the voluntary conclusion of a residual debt insurance can bring benefits. This is payable for the installments if the borrower suddenly becomes unemployed or incapacitated.
In difficult cases, the borrower can also look for a loan abroad, for example in Switzerland. There, the creditworthiness check generally does not query the Private credit, but decides purely on the basis of the existing economic criteria. The application for such a Swiss loan is usually made via credit intermediaries located here.
Current conditions and interest rate developments
Loans from banks are often quite cheap in the current phase of low interest rates. Bank rates of less than 3 to 5% pa for installment loans for free use, are not uncommon depending on the term of the loan. Car loans or real estate loans, where a security in the form of the deposit of the car letter or a mortgage can be made are often still much cheaper.
At the moment, it is not yet clear that interest rates will rise significantly again. It should be noted, however, that the individual interest of a borrower consists of many different factors. On the one hand, of course, the credit rating is crucial, on the other hand, but also include the points such as the term of the loan, the amount of credit and the profit margin of the bank in the calculation.
For crowd lending, this is quite similar, depending on the risk classification, investors are offered an individual interest rate. As the bank margin is eliminated, it can often turn out even cheaper than a bank. However, a commission must also be paid to the credit platform on the credit brokerage. This is sometimes quite high and can range from 0.5% to 4.5% of the loan amount in addition to the interest.