If personal circumstances require borrowing, a multitude of factors must be taken into account by the interested party. Choosing a suitable loan agreement involves more than comparing effective annual interest rates. The fine print, as well as the financial situation and private planning of the loan applicant, have a decisive influence on the choice and the successful execution of the loan contract.
Borrowing from the bank
The banking system places high demands on prospective borrowers. An impeccable credit rating and a secure income are usually among the essential requirements for a positive credit decision. This means that many people are excluded from bank lending. But in addition to the banks’ loan offer, non-creditworthy prospects also have numerous options for borrowing. Private loans or loans from foreign banks are popular and proven forms of cheap financing.
A simple and quick way to increase the financial resources at short notice is the disposition loan. The overdraft facility is granted by the house bank as part of the current account agreement or the account holder explicitly applies for it.
The overdraft limit granted, and thus the amount of the credit line granted, is usually based on the regular monthly income of the account holder, which must actually flow into the checking account. The overdraft facility can be canceled by the bank at any time, but it is also possible to reduce or increase the granted credit limit. The overdraft facility, also known as overdraft facility or overdraft facility, can be used to respond to short-term financial bottlenecks.
However, the interest burden on the overdraft facility is relatively high, so that this form of financing can quickly become a ” credit trap “. If the high interest charges from the overdraft from the monthly available budget can no longer be managed, refinancing into a different type of loan is an option. The installment loan is usually used to replace the amount owed from the overdraft facility.
The installment loan
The installment loan is a suitable form of loan financing for orderly cash repayment and repayment in monthly installments. The installment loan can secure the liquidity of the funds to compensate for an overdraft or to purchase goods and services. This leaves the borrower with the option of also paying mandatory monthly payments, such as rent or energy costs.
Also known as a ” consumer loan”, the installment loan can be used for almost any purpose. The installment loan finances the car purchase, but also the vacation. From the furnishing of the home, the renovation of the bathroom, breast surgery or tooth restoration to recharging your batteries in the wellness oasis, there are hardly any limits to how you can use the installment loan. The amount and the term of the installment loan are among his most important selection criteria, because here the providers differ in their offers.
In principle, loan amounts of between 1,000 and 75,000 USD are possible with the taking out of an installment loan, whereby its term is usually between 12 and 72 months. As with the overdraft facility, the purpose of the loan application is usually to be specified, but is usually insignificant for the loan approval. This results from the fact that no collateral is required for the installment loan and it is therefore given as a ” blank loan”. However, the bank can request credit insurance (residual debt insurance) or a garnishment of wages and salaries if the borrower no longer meets his repayment obligations.
For people who are fundamentally excluded from lending, such as the unemployed, low-wage earners, the self-employed, and people with a negative Credit Bureau, a loan approval is usually still possible. In addition to the guarantee, the lender may also require residual debt insurance. However, the installment loan always offers much more favorable conditions than the overdraft facility. A processing fee of 1 to 2 percent is usually charged for its submission.
The credit line
Similar to the installment loan, the framework loan is also an opportunity to be prepared for unforeseen financial burdens. The amount of the credit line is agreed, but its disbursement amounts are only paid on demand.
With the credit line, the borrower decides when and how much of the agreed credit line should be available to his account. The framework credit is therefore a permanent cash reserve that enables great financial flexibility. A usual credit line for the credit line is between 2,500 and 25,000 USD, whereby amounts of any amount – from 1 USD – can be called up flexibly.
Interest is only payable for the amounts actually paid, but not for the agreed framework. The credit line is also a cheaper option for financing than the credit line.
The lender can require the use of a guarantor for a large number of credit transactions. If the prospective customer does not have sufficient collateral available, the credit institution may request the provision of a surety to cover its risk.
As a guarantor, people who have the desired credit rating are responsible for the proper repayment of the loan. In the event of insolvency, but also if the borrower is unwilling to pay, the guarantor is liable with his entire assets. Even if the borrower has income or assets, the bank can fall back on the guarantor if the agreed loan repayment fails to materialize. The guarantee loan or the securing of an installment loan with a guarantor also enables people with little or no income to take out a loan.
The residual debt insurance as security
With many types of credit, but especially with installment and guarantee loans, the conclusion and assignment of the residual debt insurance become mandatory for the borrower. As an alternative to the residual debt insurance, life insurance (capital or risk life ) may also be accepted, with risk life insurance only covering the death.
Capital life insurance may also have savings capital that can be used to satisfy the loan claims. The amount of the ceded security must ensure the proper repayment of the loan in the event of death, unemployment or illness of the borrower. The residual debt insurance and other accepted collateral are to be assigned to the lender, with which the insured person can no longer assert claims under the contract.
While the premiums for risk life insurance remain the same, the rates for residual debt insurance also decrease as the remaining debt of the loan falls. The more of the loan amount that has already been repaid, the lower the residual debt insurance.
The mortgage loan
Anyone who can use real estate to hedge the bank’s risk when borrowing is rewarded with more favorable loan terms. In most cases, the intended use of the mortgage loan is freely selectable, but in the case of specialized providers such as the mortgage banks, the mortgage loan is generally linked to the property. In this way, pure mortgage banks usually only finance new buildings, conversions, renovations and modernizations of a property.
A mortgage is entered in the land register of the local court for a mortgage loan. Rights from the property are thus transferred to the lender. When the property is sold, the lender is first satisfied in the amount of his claim, the remaining debt of the loan. The sale or transfer of the property can only take place with the consent of the mortgage bank registered in the land register. If the mortgage loan has been repaid in full, the mortgage is also deleted from the land register. Credit institutions, mortgage banks and insurance companies issue mortgage loans that are usually equipped with low interest rates and good conditions due to the high level of assigned security.
Suitable types of credit in the absence of creditworthiness
For those who cannot withstand a bank’s credit check, there are cheap alternatives for borrowing on the private credit market. The comparison of the loan offers on the Internet shows the options for obtaining a loan approval even if there is a low or low income or if the Credit Bureau is negative.
The personal loan is not subject to the legal requirements of banking, and other regulations also apply to foreign credit institutions. This means that people who are fundamentally not creditworthy, such as the self-employed, start-ups or low-income people, can be financed through cheap loans. The online comparison options as well as the online conclusion of loan contracts are simple, quick and transparent.