What is a loan?

In the word credit is the Latin verb credere, translated to believe, trust or entrust. In the case of a loan, the borrower receives a certain amount of money from the lender, which the borrower has to repay in an agreed period and at a contractually defined interest rate.

The consumer loan

The consumer loan

Larger purchases such as a new car or a complete home furnishings can often not be financed from the current income. In this case, the bank or another financial institution lends money to the consumer if certain conditions are met. This is usually an installment loan.

The overdraft or overdraft facility

The overdraft or overdraft facility

Banks usually grant their customers a disposition loan, or overdraft facility for short. The bank customer can overdraw his account up to a certain amount, for example if unforeseen expenses arise in the short term. There is no need to apply for a loan, the interest rate for a overdraft facility is higher than that for a consumer loan. An on-demand loan is an alternative, which is similarly flexible, but available at a cheaper interest rate and usually with a larger credit line.

The home loan or mortgage

The home loan or mortgage

Only in a few cases can the purchase of a house or condominium be paid in cash. The buyer has to borrow money from the bank, which he repays over a longer period according to the agreed conditions. Building finance also falls into this area.

The business loan

The business loan

The self-employed often need outside capital to start up their business or to expand their business. You borrow money from the bank or other financial institution to make the necessary investments. This can be machines as well as setting up an office or purchasing a professional vehicle. It is often not easy for entrepreneurs to deal with private loans. However, some banks also offer the loan for the self-employed on interesting terms.

The regular income

The regular income

The lender wants to avoid, at human discretion, that the debtor cannot repay the loan. Regular income is important for a consumer loan. However, this income must be so high that the monthly loan installments can be repaid without any problems.

The collateral

The collateral

The principle of collateral applies to all loans, whether for private consumption, the purchase of a property or for the financing of your own company. In addition to the regular income, the property purchased is a security for the lender: if the mortgage cannot be repaid, the bank can sell the house or condominium.
The same applies to car loans. In the event of insolvency, the vehicle becomes the property of the bank, which can offset its claims with the sale.
An entrepreneur must also be able to convince the lender that he will be able to repay the borrowed money in the future. For example, he can offer the bank a debt-free property as collateral or set out in a detailed business plan that his future income will be sufficient to repay the business loan.

Consumer Debt Statistics: Definition, Causes, Impact

Consumer debt is what you owe, as opposed to what a company or the government owes. It is also called consumer credit. It can be borrowed from a bank, a credit union, and the federal government. There are two types of consumer debt: credit cards (revolving) and fixed-payment loans (non-revolving). Credit card debt is called revolving because it is meant to be paid off every month. They make variable interest rates that are linked to Libor.

Non-revolving debt is not paid off every month. Instead, these loans usually take place for the life of the underlying asset. Borrowers can choose between loans with either fixed interest rates or variable interest rates. The most non-revolving debt is car loans or school loans. Although mortgages are also a huge loan, they are not a type of consumer debt.

Instead, they are personal investments in residential real estate.

Instead, they are personal investments in residential real estate.

Statistics

In January 2019, the US consumer debt took 5.1% to $ 4035,000,000. That surpassed last month’s report of $ 4018,000,000,000. Of this, $ 2976,000,000,000 was non-revolving debt, and increased by 5.9%. The most non-revolving debt is education and car loans. In December 2018, the school debt amounted to $ 1569000000000 and car loans were $ 1155000000000.

Credit card debt amounted to $ 1058000000000, raising 2.9%. It surpasses the record of $ 1020000000000 set in 2008. But credit card debt is only 26% of the total debt. It was 38% of the total debt in 2008. The Federal Reserve reports on consumer debt every month. Here are historical statistics per month since 1943.

Why Americans are in So Much Debt

money debt

Why is the debt so high in America? There are three reasons.

First, credit card debt increased due to the 2005 Bankruptcy Protection Act. The law made it harder for people to file for bankruptcy. As a result, they turned to credit cards in a desperate attempt to pay their bills. Credit card debt reached an all-time peak of $ 102800 million in July 2008. That was an average of $ 8640 per household. The majority of this debt was to cover unexpected medical expenses. As a result, health care costs are the number 1 cause of bankruptcy.

The recession curtailed credit card debt. It fell over 10% in each of the first three months of 2009. During the recession, banks cut back on consumer loans. Increased the Dodd-Frank Wall Street Reform Act regulation on credit cards. It also created the Consumer Financial Protection Agency to enforce those rules. In addition, banks have tightened credit conditions. In April 2011, credit card debt had fallen to a low of $ 839,600,000,000. Despite these declines, the average American household still owed $ 7,055 each.

Car loans have increased so much due to low interest rates.

Car loans have increased so much due to low interest rates.

People took advantage of the Federal Reserve’s expansive monetary policy. The Fed reduced rates in 2008 to combat the recession. These loans are from three to five years. If the borrower fails to make payments, the bank will usually reclaim the underlying asset.

School loans increased during the recession as the unemployed sought to improve their skills. In 2010, the Affordable Care Act allowed the federal government to get over the student loan program. It replaced Sallie Mae, the previous manager. By eliminating the middle-man, the government cut costs and increased the availability of aid education. It helped boost non-revolving debt from 62% of consumer debt in 2008 to 73% in 2017.

School loans are for 10 years, but some are as long as 25 years. Unlike a car loan, there is no advantage for the bank to use as collateral. For that reason, the federal government guarantees school loans. That can offer banks low interest rates to stimulate higher education. The government encourages it because the country benefits from a skilled workforce. It reduces the nation’s income inequality and ensures a healthy economy.

How consumer debt benefits the economy

money debt

Consumer debt contributes to economic growth. As long as the economy is growing, you can pay off this debt faster in the future. That’s because your education allows you a better paying job. That creates an upward cycle, stimulating the economy even more.

This allows you to deliver your house, pay for education, and get a car without saving for them. That way, it supports the American dream.

Cons of Debt

Cons of Debt

But the debt can be devastating. If the economy goes into a recession, and you lose your job, you can be in default. That can ruin your credit score, and the ability to take loans in the future. Even if the economy remains robust, you can take on too many debts. It is not just because of the so-called poor spending pattern. It is also a result of unexpected medical bills.

The best way to avoid the disadvantages of credit card debt is to pay it off every month. Moreover, with the exception of six months, the value of the expenses becomes. That will kiss you if a recession hits, you lose your job, or that you face a medical emergency.

Increase credit opportunities with the guarantee

The guarantee is always an issue in the credit system if the applicant does not fully meet the credit requirements. This is the case, for example, if the income is too low, no other collateral such as real estate or valuables can be lent or the Credit Bureau information leaves something to be desired.

Obligations resulting from a guarantee

Obligations resulting from a guarantee

For the bank or the credit institution, the guarantee provided by another person is protection against the credit default risk. The surety undertakes to repay the loan in the event of default by the borrower as the main debtor. He must also be economically capable of doing this, which is why a guarantee can only be given by people who have a sufficiently high income and whose creditworthiness is generally good. A negative Credit Bureau entry must not exist. In some cases, several people can undertake to act as guarantors, which can be required even with very high loan amounts, whereby each individual guarantor must also meet the requirements of the bank.

Guarantor versus co-applicant for the loan

Guarantor versus co-applicant for the loan

A distinction must be made between guarantor and co-applicant for a loan. For example, if spouses submit a loan application together, each partner is the primary debtor to the bank. You are jointly and severally liable for the repayment of the loan. However, the guarantors only have to meet their obligation to repay when the principal debtor is no longer able to do so.

Both the guarantee and the application of several people increase the chances of getting a loan. However, the redemption risk is distributed differently. If two or more people apply for a loan together and everyone is registered as a debtor to the lender, then each co-applicant is obliged to pay at any time. For example, if the husband refuses payment for whatever reason, the wife is obliged to pay the bank without being asked to do so.

In practice, both variants must be carefully weighed up. The proverb: “Attached, caught” can be noted here, because everyone, whether guarantor or co-applicant, should be aware of the consequences of borrowing. Both options should never be tackled, because relationships can break, the credit and the obligation to repay remain.

Agreements between guarantor and borrower to repay money that the guarantor will make are advisable if the guarantor does not want to remain seated on his good nature. Agreements that make arrangements for improper payment by a party are also important among co-applicants.

Call credit comparison – Find cheap credit lines

 

Some banks and credit institutions offer on-demand or framework loans a special loan offer for private customers, which is cheaper than the overdraft facility and more flexible than the installment loan.

What is an on-demand loan?

What is an on-demand loan?

Money on demand and on demand – The demand credit is characterized by its high flexibility with regard to dispositions and repayment options. It is not necessarily tied to terms or to a specific purpose. The credit line is between 1,000 and 50,000 USD. The amount of the loan depends on the creditworthiness and the income of the borrower. The borrower is free to choose whether to use the entire amount at once or to debit only partial amounts. Interest is always charged on the credit line only for the amount actually used. If the borrower leaves the loan amount untouched, no interest accrues.

The borrowing rate is variable, but can be fixed for a certain time depending on the offer. When determining the borrowing rate for the credit line, some banks also orientate themselves on the customer’s creditworthiness. The higher it is, the lower the borrowing rate. In practice, the repayment of the call credit is flexible. It includes a monthly minimum rate, which is either measured as a percentage of the credit line or the loan amount actually dispensed, or is defined by a minimum amount, for example 50 USD. In addition, free special payments or the repayment of the amount dispensed are possible at once. The framework credit can be terminated by timely cancellation after the account has been cleared. Our call credit comparison is worthwhile to find the framework loan that offers the best conditions.

Due to the repayments, the call credit keeps increasing and thus offers a cash reserve that can be used as needed. However, the credit line is not designed for infinity, because here too there is a risk of over-indebtedness. Those who only pay back the minimum standard rate have a high cost when debiting their monthly interest if they exhaust the credit again and again to the limit. A calculation example: Mr. X borrows 5,000 USD, pays a minimum of 50 USD per month and, according to an amount of 4,500 USD, 20 USD per month is added. If he moves permanently in the range of -4,500 USD through regular use of the loan, he pays back 70 USD per month and maybe over years. All in all, that’s 840 USD in costs for the loan. In such a case, the installment loan is the far cheaper alternative.

A call credit is generally only granted to adults. Creditworthiness and collateral are further aspects of the credit line that decide whether to approve the loan application.

The overdraft facility as call credit

The overdraft facility as call credit

If there is insufficient credit in the checking account to cover the expenses, the overdraft facility will help. Today, many consumers automatically set up overdraft facilities when they open a checking account. The overdraft facility is linked to the checking account, ie it is applied for at the bank where the checking account is also held. The credit line for the overdraft facility is based on the income that goes into the checking account and is determined by the bank. It is often twice the monthly incoming payments or monthly income. The higher the income, the higher the overdraft facility or vice versa. In general, however, it is not designed for large amounts, unlike the credit line, where the credit line can be up to $ 50,000. The debit interest for the overdraft loan is also significantly higher than that of the call credit, which is why a credit line can also be an option to redeem an overdraft current account, especially if the customer is permanently in the red. In addition to the interest on the overdraft facility, the interest on the tolerated overdraft, which is extremely high and can amount to almost double the overdraft interest rate, must also be taken into account. A tolerated overdraft is said to exist when dispositions are made beyond the credit line.

In our call credit comparison you will find, among other things, credit lines facilities that are offered independently of a checking account as an independent call credit.

On-demand credit from branch banks or direct banks?

On-demand credit from branch banks or direct banks?

Direct banks work less costly than branch banks, which is why the conditions for an on-demand loan are often much better for the potential borrower. When lending, the personal trust relationship with the branch bank can sometimes be helpful, because accounts are usually already kept here and the income relationships are known. 

Maturities in the framework loan yes or no?

Maturities in the framework loan yes or no?

The majority of on-demand loan offers are not tied to a term. Some banks, on the other hand, set the term for the credit line according to the creditworthiness and collateral of the borrower, whereby they specify a term range in the offer. Now which is better? Call credit with or without a term? Framework-oriented framework loans require significantly more discipline when repaying than call-off loans with an unlimited term, because when the term ends, the loan amount must also be repaid in full. Without a term, the credit line can practically be exhausted again and again, and of course it also represents a debt trap.

Amount of the loan amount

Amount of the loan amount

The possible loan amount is ultimately determined by the bank. Generally, with a call credit, loan amounts of 1,000 to 50,000 USD are available that serve different requirements. When choosing an offer, the first thing that matters is how high the personal credit line is calculated. If, for example, you would like to apply for a credit line in the amount of 10,000 USD, the first thing to do in the framework loan comparison is to probe the offers that actually offer such a credit line.

Framework loans for everyone?

When we talk about overdraft facility, the answer is relatively clear, because it is practically standard and is also given to trainees or students who have reached the age of 18 and have the appropriate creditworthiness or security. The special credit lines offered by banks and credit institutions are primarily aimed at employees who are in permanent employment, and on-demand loans are also available for pensioners, the self-employed, freelancers, civil servants and employees in the public sector, who can show up at special rates. In contrast to installment loans, a credit line is not tied to terms, but should be repaid quickly and should not be used again and again over a period of years.

The interest rate for the credit line – what to look for

The interest rate for the credit line is basically variable and not fixed as with the installment loan. This means that it is subject to interest rate developments and can be adjusted up or down at any time. A few banks and credit institutions offer an interest rate guarantee for a certain period, which can last from a few months to several years. The interest is then fixed for this time.

If you carry out the framework credit comparison, you will find both the debit interest rate tied pa and the annual percentage rate when you enter the interest rate. The borrowing rate is the actual interest you pay for the loan, while the annual percentage rate includes the borrowing rate plus borrowing costs. The effective annual interest rate must therefore be used for a profound comparison of the offers. Extra costs are to be considered separately, which are usually marked as such in the offer, such as account management fees or costs for special payments.

Depending on the offer, the interest rate for the credit line depends on the borrower’s credit rating. You can recognize this from the fact that it says, for example: “Effective interest from …”
Otherwise, only the value of the effective interest or debit interest pa is specified.

The level of the interest rate varies from bank to bank. Some banks offer the credit line at a discounted interest rate for a certain period of time, but this does not necessarily have to be an advantage in the long term. Use a call credit comparison to check which offer actually promises you the best conditions, taking into account all the premises, including the repayment period and interest costs. Here is an example: If the variable interest rate is 4.65% for 12 months and increases to approx. 7.00% from the 13th month, this call credit is particularly interesting if you can repay the loan amount used within a year ,

Repayment options credit line

Repayment options credit line

There is talk of flexible repayment options for on-demand loans. But what does that mean exactly? The borrower can not repay this loan at will, the banks set a monthly minimum amount that is between 1 and 3% of the loan amount. However, there is flexibility with regard to special payments and also the repayment of the amount used in one amount is possible and this is usually free of charge for many offers. It is precisely this point that distinguishes the framework loan from the installment loan.

Pay attention to extra costs!

Special payments of any amount and repayment in one amount should always be possible with the call credit without cost calculation. Account maintenance fees are also to be observed, which the borrower would also like to forego. Processing fees also have a negative impact on the loan. In our call credit comparison you will only find offers that do not include any processing fees.

Insurance optional

Insurance optional

An on-demand loan also wants to be paid off, but what if an unforeseen shortage arises, the borrower slips into unemployment or dies? Many banks and credit institutions offer additional insurance to cover this risk. For example, residual credit insurance or life insurance is an option, especially for professional groups such as soldiers. If you are interested, check offers from independent insurance providers at the same time, because you do not necessarily have to take out such insurance with the bank that issues the credit line.

New customer offers – keep an eye on the comparison!

New customer offers - keep an eye on the comparison!

Some framework credit offers advertise with the new customer bonus, which can be very different. Discounted interest or an interest reimbursement can be mentioned here as examples. Compare such offers with credit lines without new customer extras in terms of actual efficiency and total costs. The offer can only be considered if you receive an advantage without conditions that does not cause any further costs in the long term.

Cancel credit line

Cancel credit line

The framework credit can be terminated by the cancellation once the loan amount has been repaid. Notice periods must be observed, which vary in duration depending on the bank. For credit lines with a term, the loan usually ends automatically at the end of the term, then the credit account must also be balanced.

Loan declined? Our TIPS for the 2nd request.

A loan rejection is very disappointing at first, as there were many hopes associated with the loan request. There are many different reasons why the loan was rejected, often due to a lack of prerequisites. Banks are not obliged to give these reasons.

However, the rejection does not automatically mean that in principle no installment loan is available, just not from the requested bank or banks. It is important for the applicant to review their own credit requirements again in order to make a new request with greater chances. The most common reasons for rejection and measures that may still make it possible to lend are explained below.

Why was my loan declined?

Why was my loan declined?

Reasons for loan rejection are usually based on the fact that one or more basic requirements and conditions for the loan granted by the requested institution were not met. This includes, for example, age, employment relationship, credit rating. The significant features that can lead to rejection are listed here.

Age

If the borrower is too old or too young, a rejection is inevitable. The minimum age for borrowing is regulated by law. The applicant must be over the age of 18, i.e. of legal age. Lending to minors is not permitted. The maximum age depends on the individual criteria of the bank. Some credit institutions do not limit their age, others limit borrowing to people who are under 70 years of age. However, there is no binding regulation here, which is why the relevant banking conditions are always decisive. In particular, the age restriction for older borrowers is by no means a will of the bank, but a protective measure for both parties. It is in the interest of both the bank and the borrower to have the loan repaid. In addition, overindebtedness is to be prevented in old age.

employer

Many German banks that offer loans require the employer to be based in Germany. This prerequisite is based on the fact that wage or salary assignment is often required as security for the loan. If the employer is based abroad, the money may sometimes be difficult to collect and subject to other legal requirements.

Fixed-term employment contract

The majority of lending banks do not recognize a temporary employment contract. The time limit is very variable, it can range from three months to two years. The problem with time limits is that the period in which a secured income is drawn is not compatible with the loan term. The term of a loan must be at least one or two years for the majority of providers. There is a very high degree of uncertainty here, which is why fixed-term contracts are excluded from the outset. If you still want to get a loan with a time limit, you should look for bank offers with very short terms. The term may not exceed the time limit. If it is the same as the time limit, the problem-free repayment must be guaranteed within the time limit.

probation

A trial period is also one of the exclusion criteria for lending. In Germany, the maximum trial period is six months. During this time, employees and salaried employees receive a fixed remuneration that is paid monthly. However, there is also the problem here that the terms for loan agreements must be at least one or two years; for small loans, the minimum term can be reduced to six months.

Bad credit rating

Several credit inquiries have already failed due to the creditworthiness. Negative Credit Bureau entries are consistently a reason for rejection at German banks. They are highly informative regarding the payment behavior of the borrower. This does not only refer to loans, but generally to outstanding invoices and receivables. If the debtor fails to meet his payment obligations, he risks a negative Credit Bureau entry. A serious Credit Bureau-free loan can help here. Furthermore, loans terminated by a bank, personal bankruptcy or arrest warrant lead to negative entries.

Even if Credit Bureau is one of the major credit bureaus for credit checks, it is far from being the only one in Germany. Depending on the bank, other credit agencies are interviewed. Which of these is usually shown in the information provided by the provider. Banks often create their own credit scores based on the information provided by the credit bureaus, information on the applicant’s income and assets and other bank-related characteristics and priorities.

The higher the credit score, also according to the bank’s criteria, the higher the chances of getting a loan. Good to excellent creditworthiness is achieved through the punctual and reliable payment of liabilities and the fewest possible loans with low loan amounts. Many loans, high credit burdens despite a comparably low income and recurring payment difficulties push the credit rating down sharply and often prevent new borrowing.

Overdraft facility exhausted

If the account is in the red, this can have an unfavorable effect on the loan approval, particularly if the overdraft is permanent. Because the bank statements of the past few months can give the bank an idea. The overdraft facility is also a loan, to be precise, a credit line. As long as it is not completely exhausted, it can always be used up to the limit. The conclusions drawn by credit institutions from a permanently overdrafted current account on the handling of borrowed money are not exactly positive. Anyone who is always in disposition does not ensure the necessary compensation and takes things too lightly. However, responsible handling of liabilities is important for the lending bank. Therefore, the tip: use the overdraft facility for as short a time as possible and ensure that you make a full settlement in good time, at least three months in advance, before making a loan request.

Return debits on bank statements

Return debits, which can be seen on the submitted bank statements, are interpreted negatively to the applicant in case of doubt. On the one hand, the applicant may have arranged this himself because the debits were made incorrectly, on the other hand, contractually agreed direct debits may have been returned by the executing bank due to insufficient funds in the account. The second option, which is much more common in practice, signals to the potential lender that there are financial problems. If the first variant applies, this should definitely be noted on the account statement or explained to the credit bank.

Debiting of debt collection companies on the bank statement

If debtors fail to meet their payment obligations, the creditor can commission the collection of the money through a debt collection agency. If such amounts appear on the bank account statements, it can be seen that the borrower did not take his payment obligations very seriously in the past. This has well-founded doubts about the creditworthiness and can be a reason for rejection.

parental leave

With the so-called parental leave, as unpaid professional time-out or part-time option for full-time employees for the purpose of bringing up children, banks have a hard time and therefore usually exclude people on parental leave as borrowers. No credit-related income flows during this time. Even if both parents make the application together and one of them earns a full income from work, the loan can be refused if the income is too low.

What to do if the loan is declined?

What to do if the loan is declined?

Putting your head in the sand is certainly not the right solution. Because there are some ways to get the desired credit with a bit of luck and understanding. The following options show what you can do now.

Talk to the lender

The requested loan with the selected bank was rejected, no reason was given. The applicant should ask the reason for rejection in a friendly manner, even if it initially requires overcoming. In the best case, he will receive specific information as to why the lending has failed and can act accordingly. Sometimes a solution that can be implemented quickly can be found together with the bank advisor. In fact, sometimes it can only be little things that need to be clarified in a conversation. If the reason cannot be found out, check off and tackle the next options.

Request Credit Bureau self-disclosure

It is generally recommended to obtain self-disclosure from Credit Bureau at regular intervals in order to gain a well-founded overview and certainty about your own credit status. This clears a lot of uncertainties in advance and you can quickly deal with incorrect or outdated entries. The self-disclosure is to be requested online or in writing. Interested parties can register on the Credit Bureau website and order a self-assessment online. A distinction is made between the chargeable services and the free copy of the personal data (according to Art. 15 GDPR). The copy of the personal data contains all the personal data stored at Credit Bureau. This information sheet is sufficient for an initial credit assessment and control. If incorrect or outdated data is discovered, incorrect entries should be deleted. This works on request, more information can be found on the Credit Bureau website.

Creditworthiness is not only important in order to get a loan at all, it also plays a major role in interest costs, which is often dependent on creditworthiness. Thus, the loan can become very cheap with a very good credit rating, while with a medium credit rating it tends to be expensive.

Inquire at another bank

The supply of loans is more diverse than ever thanks to the majority of direct banks. It is therefore worth asking about other institutes in question. Trying again can pay off if the new application is carefully considered. It has to be checked whether all requirements and conditions can be met, a Credit Bureau self-disclosure provides information about the stored data and your own credit rating. Fine-tuning the credit parameters such as loan amount, duration and rate can also increase the credit opportunities. Income and expenses must be calculated with great care in order to be able to provide correct and reliable information. A loan comparison is always a good idea.

Apply for a loan with a guarantor

If your own income is not high enough for the desired loan or the creditworthiness shows some blemishes, a co-applicant can compensate for the insufficient conditions, provided that he fulfills the conditions one hundred percent. All banks offer this possibility, although this is not always explicitly emphasized in the general information. A guarantor can also be proposed to the bank that refused the loan. Any adult and legal person who has a fixed income from a permanent employment contract and a good credit rating is eligible as a guarantor.

Alternatives in the event of a loan cancellation by several banks

Alternatives in the event of a loan cancellation by several banks

Anyone who has made several attempts at various banks that ended with a rejection of the loan can imagine that the rabbit is deeper here. As a rule, no loan is then available through the typical banking route. For these “more difficult” cases, there is still a glimmer of hope.

Credit marketplaces for private loans

The Internet has opened up a great opportunity for everyone who generally has a difficult time getting a loan from banks. These include low earners, the self-employed, freelancers, retirees, people with a low credit score and some others. Credit marketplaces like Auxmoney, Smava and Lendico are the top dogs that promise light on the horizon. Here, loans are realized from private to private, with a bank in between, which is responsible for processing the loan business and making payments. It is characteristic of this system, however, that private lenders provide money and can therefore decide for themselves in which loan projects they want to invest. In contrast to the profit-oriented banks, the focus here is on personal components such as help in difficult situations. The creditworthiness is not left out, but the criteria are less strict.

Lend life insurance

Life insurance is reluctantly affected. However, if there is no way to get a conventional loan, mortgaging life insurance can show a way out. To do this, a loan is taken out on the life insurance in the amount required. Life insurance then serves as security. This “mortgage loan” can be applied for from the insurance company itself, alternatively also from a building society, a bank or specialized financial service providers. Here a comparison of offers can favor the right decision.

The maximum loan amount is based on the surrender value of the life insurance. This is the sum that the insured would receive if the life insurance policy were terminated. A prerequisite for a loan is that it is a life insurance that runs for several years and insists on the credit.

The advantages of mortgage lending are obvious. The old-age provision remains intact, and life insurance does not have to be terminated in order to receive the money. This policy loan is also available if the credit rating is poor. The life insurance loan is not recorded in the Credit Bureau. There is no prepayment penalty for early repayment.

pawn shop

The pawnbroker has been known as an option for a short-term loan since the early Middle Ages. Every major city has pawn shops where you can lend valuables. The principle is very simple and straightforward. Anyone who owns a moveable object of value, but is reluctant to sell it, can take it to the pawnbroker. This estimates the possible sales value and pays the “pledger” between 25 and 50 percent of the sales value. The pawn loan pays interest for the duration of the pawnshop, for amounts up to 300 USD, for example, interest of 1% accrues, which is also regulated by law. Furthermore, monthly fees are charged between 2.50 and 6.50 USD depending on the deposit value.

However, this type of loan only works for a short period of time, usually three months. The contract can be extended in writing, but not unlimited. If the item is not released, the pawnbroker is entitled to auction the item or sell it in his shop. If he achieves a higher than the estimated sales price, the difference is paid to the pledger. Basically, only items that are actually worth a consideration and are easy to sell are suitable for pledging. These include, for example, real gold jewelry, antiques, designer furniture and high-priced technology.

The pawnshop is a good option if short-term, quick and unbureaucratic money is needed, because the repayment has a tight window. The pledger’s creditworthiness is irrelevant, only the identity card has to be presented.

Loan rejection despite positive Credit Bureau, how is that possible?

Loan rejection despite positive Credit Bureau, how is that possible?

Some people no longer understand the world if, despite positive Credit Bureau self-disclosure, a loan cancellation flaps into their home. This is also possible because, as already mentioned, the individual scoring of the bank, which is made up of many individual components, ultimately decides. Which of these exactly remains the secret of the bank. In addition to the credit scores of credit agencies, information on income, the profession exercised, the financial position of the borrower as well as the evaluation of account statements and existing liabilities are included. The result of the Credit Bureau query is equally important insofar as the exact examination of loan applications usually only takes place after the data has been called up. If the result is inadequate or there are negative entries, the check is sometimes unnecessary and the loan is rejected directly.

The loan was rejected despite the guarantor. What can I do?

The loan was rejected despite the guarantor. What can I do?

Guarantors and co-applicants should still make the car loan possible if their own requirements are insufficient. If a guarantor has now been found, but the loan has still not been approved, perplexity spreads. Without asking the bank concerned, it can only be assumed that the guarantor also did not meet all the requirements. Either the income was too low, the guarantor too old, the credit rating was mediocre. Speculation helps little. In general, a guarantor only makes sense if it optimally meets the requirements in all respects, because it is supposed to compensate for a deficiency and ensure otherwise unsafe repayment.

Is a loan refusal recorded in the Credit Bureau?

Is a loan refusal recorded in the Credit Bureau?

A loan refusal is not explicitly noted in the Credit Bureau, but it can be visible to other banks. It is crucial here whether a request for credit or a request for loan terms has been made. A credit request is stored in the borrower’s Credit Bureau, is visible to other credit institutions for ten days after entry and has a negative impact on the credit rating for one year. A rejection is thus indirectly recognizable. The situation is different with an inquiry about loan terms. The credit conditions request is also noted in the Credit Bureau, but is not visible to third parties and has no negative impact on the score. Anyone applying for a loan should therefore always make sure in advance that a credit check is carried out under the premise of credit terms. Credit Bureau’s self-assessment helps to assess its own creditworthiness and shows all entries. If the entries are incorrect or incorrect, you can react accordingly. Therefore, the self-disclosure should always be obtained before a loan request.

Borrowing money in the pawnshop – how it works, advantages & disadvantages.

If you urgently need money, but cannot get a loan from the bank and cannot overdraw your current account, the pawn loan from the pawnshop is often the last option. Provided that you have a valuable item that can be pledged, cash is immediately available without application and without annoying questions.

Image of pawnbrokers largely tainted

Image of pawnbrokers largely tainted

Although the image of the pawn shop is still partially negative, it is lucrative for pawnbrokers and customers. The pawn shops that are now available in all major cities are also booming in Germany. The actual business in the pawn shop is something of a barter. Customers exchange their valuables for cash by taking out a mortgage.

Typical customers

Typical customers

Customers of the pawnbrokers are not, as one might suspect, people from the marginalized social groups, because they usually have no valuables that can be pledged. Many customers come from the middle class. It is often the self-employed or freelancers who have to bridge liquidity problems or people who, for whatever reason, do not get a loan from the bank or do not want to apply for one.

How does a pawnshop work?

How does a pawnshop work?

Virtually anything that is more or less valuable can be turned into money in the pawnshop. Popular pawns are gold, valuable jewelry such as chains, rings, bracelets and watches, but also antiques or high-quality porcelain, electronic items or designer clothing can be pawned. There are even special pawn shops for cars, boats or construction machinery.

Legal regulations

In the Federal Pawnbroker Ordinance, the provisions under which the pawnbroker may take place are regulated by law. Nationwide, the pawnbroker lends his money at a fixed interest rate of 1 percent, at which additional fees of up to two percent per month may apply.

Amount of payment and term

The pledge loan will generally be between 25 and 50 percent of the value of the object to be pledged. The terms of pawn lending contracts are required by law to be at least three months. A deposit is issued for the deposit, which entitles the customer to redeem the object of value. To do this, the loan plus interest and fees must be repaid within the set period.

Extension and auction

If a debtor is not financially able to trigger the mortgage loan within the period, there is the option to have the mortgage loan extended. If the object of value cannot be triggered at all, it goes to the public auction. There are also regulations and deadlines for this. A pawn that has not been released may be put into auction by the pawnbroker at the earliest one month after the due date or at the latest six months afterwards.

If the auction achieves proceeds that are higher than the pawn loan plus interest and all applicable fees, the pawnbroker must pay the difference to the previous owner of the valuable item. If the object of value cannot be auctioned, the pawnbroker is entitled to sell it.

The advantages of mortgage loans

The advantages of mortgage loans

Whoever goes to the pawnbroker is not in debt. An adequate asset is deposited for the pledge. Interest and fees are payable for this service.

In the event of short-term financial shortages, the pawnshop is an ideal way to get cash quickly and, above all, unbureaucratically. The pawnbroker does not ask any questions, only the ID card has to be presented. As a pledgee, you are entitled to redeem the pledge within a certain period, which is clearly better than if valuable heirlooms had to be sold in the event of liquidity shortages.

Creditworthiness, income and Credit Bureau information are irrelevant. Anyone who has something to pawn can get a mortgage.

The disadvantages of mortgage loans

The disadvantages of mortgage loans

Mortgage loans have three major disadvantages that must be weighed against the advantages. Often less than 50 percent of the market value of the object of value is mortgaged. How much is paid depends on the pawn and the pawnbroker’s discretion. In addition, the mortgage loan is a very expensive loan compared to normal installment loans. A mortgage loan can total fees of up to 40 percent. If you borrow 1,000 USD, you may have to pay back 1,400 USD. The biggest disadvantage, however, is the time factor. You only have three months to redeem the deposit, each extension incurs additional costs.

Conclusion

Conclusion

It is good that there are pawn shops. It is also good to know that everything in the pawnshop is done according to legal rules. The pawnshop is an alternative for people who urgently need cash and who have valuables that they do not want to sell. Just like for people who don’t get a loan from the bank. However, the mortgage, which is not really a loan, is one of the most expensive ways to get liquidity.

Alternatives to the pawnshop

We show you other alternatives to borrow money outside of the usual banking business in our article Lending money without a bank.

Real estate loan insurance

A lot is calculated and calculated when it comes to a loan for the purchase of real estate or the construction of a new home. However, it is not only the pure credit terms that require an intensive review; securing the repayment is also part of an optimal real estate loan. There are various insurance options available for real estate loans. The costs for the corresponding insurance premiums must then of course also be taken into account in the expenditure budget. It is therefore a good idea to think carefully about this before you take out a loan.

Why home buyers need insurance

Why home buyers need insurance

Life almost never runs in completely straight and completely predictable paths. Changes in the personal circumstances of the borrower can have an adverse effect on the income and thus on the repayment of the real estate loan. The greatest risks are incisive events such as:

  • unemployment
  • Illness or accident that lead to incapacity for work or work
  • Borrower’s death

If one of these cases occurs and there is no sound protection, the borrower or his relatives face a major problem, because life goes on and the bank wants their money. A short-term suspension cannot be a solution here, since a quick improvement in the financial situation in such events is the exception rather than the rule. If the installments can then no longer be paid, the worst case scenario is the loss of the property.

Damaging or destroying the property can have far-reaching consequences. The effects of natural forces, vandalism, burglary, fire, water damage automatically mean costs that tear a gigantic hole in the household budget. Therefore, insurance of the building is usually essential for real estate borrowing and contractually specified.

When building, renovating or modernizing a property, additional unpredictable risks have to be taken into account, which is why a lack of insurance can be expensive for the builders and thus also endangers the loan.

What types of insurance are required?

What types of insurance are required?

In the following, all possible insurances are listed and described depending on the risks. Prerequisites and scope of services must always be carefully studied with the providers in order not to experience a nasty surprise later. Generally, the borrower is free to choose the insurance company. Residual debt or life insurance are sometimes linked to the loan agreement and are then taken out with an insurance partner of the lending bank.

Disability insurance

Disabled means that the learned or previously practiced profession can no longer be practiced. Reasons for this are, for example, physical or mental illness, accident or disability. Disability can be permanent or temporary, but it must be at least 50% and determined by a doctor or expert. However, the disability does not necessarily preclude the person concerned from being able to work in another profession.

An occupational disability insurance covers employees, employees and the self-employed by paying an occupational disability pension. This voluntary private insurance is recommended for all who depend on their labor for their livelihood. Since the requirements and conditions vary from provider to provider, a comparison is worthwhile.

The insurance tariff is determined by the job, health status and desired pension level of the potential policyholder. High-risk occupations such as bricklayers or roofers demand a higher premium, the same applies to hobbies that can also be queried. So if you regularly do bungee jumping or alpine climbing, you will be upgraded accordingly. The most important criterion for taking out a BU insurance at all is the state of health when the contract is concluded. Here, however, there are again large differences in the design of the providers, which impairments exclude the conclusion.

In principle, occupational disability insurance should be taken out as early as possible, from the very start of your career. When it comes to tariff conditions, it is not only the cheapest premium that is important, but rather flexible premium adjustments, a waiver of the abstract referral (working in another profession) and, if necessary, payment in the event of only temporary disability.

Term life insurance

Risk life insurance comes into effect in the event of the borrower’s death. The amount determined when the contract is concluded will be paid to the beneficiaries. Beneficiaries can be life partners, relatives, companies, business partners or associations. The insurance premium is usually paid in a monthly installment, but it can also be agreed as a one-off sum when the contract is concluded. This is the case, for example, if the life insurance is linked to a real estate loan. The total amount is added to the loan amount and allocated to the monthly loan installment. Various banks explicitly require this protection for real estate loans. Residual debt insurance is a sub-form of risk life insurance.

Payment protection insurance

The residual debt insurance is the most well-known protection in the credit system. It relates directly to the loan and, depending on the tariff model, covers risks such as incapacity to work, disability, unemployment, death or, if applicable, divorce. Each risk as well as the combination of several or all possible risks can be insured. The more extensive the coverage, the more extensive the examination options are. The contribution amount also increases accordingly.

The amount of the premium depends on the term, the sum insured, the age at the time the contract was concluded, and the state of health. Health, occupational and leisure risks as well as the level of education are also included in the calculation. With two or more borrowers, it makes sense for everyone to take out such insurance. Compound policies with reciprocal benefits are also possible.

Real estate financing is offered by numerous banks with the right residual debt insurance, or it is required. Both the tariffs and the conditions and benefits show such large differences depending on the provider that an independent comparison in advance is advisable to exclude expensive insurance.

unemployment insurance

The unemployment insurance in relation to the repayment of the loan is to be differentiated from the statutory or voluntary unemployment insurance. It is therefore not to be equated with the employer’s and employee’s share or the voluntary insurance of the self-employed.

The so-called “unemployment protection insurance” is a private supplementary insurance in order to better cushion financial losses. It closes a pension gap between unemployment benefit I and previous earnings. The amount of the benefit is 33 to 40 percent of the last net salary. Supplementary unemployment insurance is currently only available for people in dependent employment, but not for the self-employed.

With this insurance, there are a few points to consider regarding the obligation to pay benefits:

  • Applies only to operational layoffs, with some providers also when concluding termination agreements or if wages are not paid for at least three months
  • Waiting times must be observed, duration varies depending on the insurance company
  • Limited benefit period, e.g. 12 months, 21 months

The prerequisites for graduation are also linked to conditions:

  • Non-terminated employment (temporary or permanent)
  • There is no relationship to the employer
  • Working hours are at least 15 hours a week
  • Minimum income net 1,000 euros / month
  • Age restriction (often up to 60 years)
  • German main residence

The contributions to private unemployment insurance must also continue to be paid during unemployment. The supplementary insurance ends when the pension begins.

Home Insurance

Building insurance for existing properties is one of the most important and that is why every homeowner should have taken out one. In loan agreements for the real estate loan, the conclusion is usually mandatory. The insurance is primarily available for privately used residential property. A commercial share is taken into account if the part used for residential purposes is at least 50%. Residential building insurance is only intended for completed buildings. There are some special insurance models for houses under construction. A prerequisite for the insurance’s obligation to pay benefits is that the damage was not caused intentionally or through negligence.

The premium for residential building insurance depends on the one hand on age, living space, condition, equipment of the property and on the other hand on the scope of the integrated insurance benefits. Since there are some significant differences in the tariff models and constant adjustments are made, a well-founded comparison of providers is essential.

Numerous risks can be insured, whereby the standard is limited to the basic risks of fire, tap water, storms, hail and the resulting damage to the property and the fixed inventory (e.g. heating system, bathtub, permanently installed floors). For this purpose, the group insurance of fire insurance, tap water insurance and storm insurance offers itself. Burglary damage is usually also insured if the damage has definitely occurred to the building and its solid components.

A number of supplementary insurance policies can be included in the contract. This includes natural damage insurance, which pays for damage caused by floods, floods, snow pressure, avalanches, landslides and earthquakes, among other things. There is also glass insurance for windows.

Household insurance can also be part of residential property insurance, whereby this always refers to the selected damage insurance. Anyone who has a group insurance will be replaced in the event of damage by fire, tap water or storm, the household items that have been damaged by these events. If, for example, furnishings are destroyed by flooding, the household contents insurance for fire, tap water or storm does not pay.

The so-called house and landowner liability insurance is another and important additional insurance within the building insurance. This takes over third party claims for damages against the house and landowner, which result from a neglect of the traffic safety obligations, e.g. passers-by slip on paths not cleared of snow and injure themselves.

Builder’s liability (for house construction)

Builder

The owner’s liability is a voluntary insurance, but it should not be waived. This insurance covers liability claims of third parties for the new construction of a house as well as for major renovation and refurbishment measures, which have been damaged due to the violation or neglect of the road safety obligations of the owner.

Something can always happen on a construction site, on the one hand if it is not secured according to the regulations, and on the other hand during construction work. Safety precautions must therefore be taken, and compliance with building regulations must also be checked. A popular example of liability damage is children playing, who can gain access to the construction site due to insufficient barriers and then injure themselves or fall into a pit. The builder is responsible for this, he is responsible for the safety, control and monitoring obligations, even if he entrusts the contractor with the execution of the tasks.

Personal injury, property damage and pecuniary damage are insured in the owner’s liability. If, for example, a passerby is on a bike and is injured by falling roof tiles, which also damage the bike, the insurance company also takes action to replace the bike. Financial losses refer to consequential losses and include benefits due to loss of use or loss of earnings of the injured party. Damage that can be inflicted on family members is not insured. The intentional or negligent disregard of the building owner’s obligations also excludes the insurance’s obligation to pay benefits.

The basis for the amount of the insurance sum is the construction sum, which can be provided through construction financing, plus risk premiums for own contributions. In-house contributions generally involve a higher risk, for example if the client is not a specialist. This increases the premium. The builder’s liability insurance is taken out for the entire construction period, ideally before the first step until the official acceptance of the construction. The home and landowner liability insurance is often included. If you want to be on the safe side, opt for insurance immediately after buying the property, because even a building plot carries its risks.

Experts recommend that the sum insured be set too high rather than too low and that the offers be compared. Since accidental damage in particular can result in high claims for damages, the builder is always advised not to give up his scepter and also to control the work of the contractors.

Construction insurance (for house construction and renovation)

While the owner’s liability explicitly represents protection against damage to third parties, the construction insurance, also construction insurance, is responsible for damage to the building caused by natural forces such as flood or storm, vandalism, construction and material defects, negligence in the implementation, theft of materials, Tools, machines are created. Anyone who builds or extensively refurbishes is well advised to take out construction insurance. It is also used by contractors as an important safeguard. Fire, fire and lightning strikes are not covered by this insurance – Here you will find the fire shell insurance, which should not be missing in the construction phase.

The construction service insurance is also limited in time to the construction phase. Construction costs or renovation costs as well as personal contributions determine the sum insured and the premium amount. As with the owner’s liability insurance, personal contributions increase the premium, even if they reduce the overall construction or renovation costs. The scope of services in detail varies depending on the provider and should be checked carefully before conclusion. Damage to the building can be serious and quickly move into the five- to six-digit range. Therefore, it is better to insure more and higher than to endanger construction finance in the end through high costs.