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
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
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
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 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 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 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.