Overview of credit types at banks

What types of loans are there?

What types of loans are there?

With a loan, long-cherished dreams can be realized: the new car, your own four walls or the big wedding celebration – as individual as the needs, the types of loan are as diverse. But what types of credit are there actually?

Overview of common credit types

Overview of common credit types

  • Installment loan: An installment loan is a generic term and describes the classic form of loan. You repay the loan amount received in monthly installments over a specified period.
  • Car loan: A car loan is used specifically for the purchase of a vehicle (car, motorcycle, camper). It can be used for new cars and used vehicles and is only earmarked for this occasion.
  • Home finance: Home finance is a loan that is taken out for the construction, modernization or purchase of a house or condominium.
  • Online loan: An online loan describes the procedure for awarding the loan. In most cases, it is awarded online via a comparison portal.
  • Instant loan: An instant loan is applied for online, processed within a few minutes and paid out on the same day.
  • Framework credit: With a framework credit, you are provided with a specific credit limit. This includes, for example, the overdraft facility at your bank.
  • Personal loan: A personal loan is another term for installment loan. It can be given by a bank or by private individuals.
  • Employer credit: The employer loan is granted to you by your employer. You often get better interest there than at a bank.
  • Civil servant loan: A civil servant loan has particularly favorable conditions. It is only available to civil servants, professional soldiers, or civil servants.
  • Senior credit and student loan: senior and student loans are to receive special loans for specific population groups that have a harder time a normal installment loan.

Which loan is right for me?

Borrowing is often a lot of money, so choosing the right loan type is important. The financing options differ, for example, in the purpose for which the money can be used or in the group of people for whom the loan was made. Depending on the type of loan, the loan interest rates vary and decide how expensive or how cheap the loan will be.

How do I find the right loan

Once you have found the right loan type for your project, you can benefit from favorable terms when taking out a loan. The following questions can be used to find out which type of loan it is:

  • What is the purpose?
  • Who is the borrower or which professional group does he belong to?
  • Who’s the lender?
  • Is there a framework available?
  • Where do you apply for your loan?

Loan types without and with purpose

Loan types without and with purpose

The most common type of loan without a special purpose is the classic installment loan. On the other hand, if borrowers already know what they want to use a loan for, they can save interest costs with a dedicated loan. And so the two types of loan differ from each other.

  • The classic installment loan without earmarking

    Almost all types of credit are based on the principle of the classic installment loan: They borrow a certain amount at a fixed interest rate and pay the money back in installments over a specified period. Banks offer loan amounts between $ 5,000 and $ 50,000, and some providers offer small loans from $ 1,000. To get an installment loan, you need

    • be of legal age
    • have a permanent residence in Germany and
    • have a fixed income.

    It is also important that Credit Bureau classifies you as creditworthy. Credit Bureau is the largest business information service in Germany, which uses your data to assess your creditworthiness and passes this information on to banks or retail companies. In general, the higher your credit rating, the cheaper the loan interest at which banks lend you money.

    People who do not have a good credit rating from the perspective of the banks can access a loan without Credit Bureau. These loans are granted without prior credit information. However, the providers of such consumer loans secure themselves with high, often double-digit interest rates against a possible default of the borrower. Loan brokers without prior Credit Bureau information often charge fees before a loan contract is even signed or for faster processing. Credit Bureau describes the procedures of most of these credit intermediaries as untrustworthy.

  • Installment loans with a purpose

    A dedicated loan is an installment loan that banks grant for the purchase of a particular product. That can

    • be a car loan for a vehicle
    • construction finance for the purchase of a home or
    • a modernization loan for renovations of your own four walls.

    As a rule, earmarked loans are cheaper than conventional consumer loans. This is because the bank has collateral with this type of loan. When it comes to car financing, for example, this is the newly acquired vehicle. If the borrower’s payments fail, the bank can sell the borrower and pay the outstanding balance of the loan. It is similar with real estate financing.

    Real estate loans are granted from $ 50,000 upwards, usually six-figure sums. This type of loan always includes an entry of the land charge in the land register. This mortgage enables the bank to sell or foreclosure the property if the borrower fails to make its monthly payments.

    With a loan for the renovation, repair or conversion of a property, the so-called modernization loan, no entry in the land register is necessary. Because these are usually loan amounts up to $ 50,000. Nevertheless, the security for the bank is also the property or the lower default risk of the borrower. After all, he owns property that he can sell in a financial emergency.

Types of credit for specific professional groups

Types of credit for specific professional groups

There are types of credit that are tailored to specific groups of people. This includes civil servants, civil servants, pensioners or even students. We’ll show you what they are.

  • The civil servant loan and the civil servant loan

    Officials, academics, civil servants and professional soldiers offer banks the civil servant loan. Since the default risk of borrowers with these professions is low, these groups receive loans at particularly favorable conditions. In contrast to the civil servant loan, the civil servant loan is taken out together with a life insurance or a pension insurance. The borrower pays the insurance at the monthly repayment installment, which is used to pay off the loan at the end of the term.

  • Senior loan and student loan

    When lending to a bank, it is often crucial for the bank whether the borrower is in permanent employment. As a rule, this does not apply to pensioners or students. It is therefore often difficult for these groups of people to obtain a loan. In the meantime, however, there are special types of credit for them. The student loan is granted, for example, by the Across Lender and has the special feature that it only has to be paid off after graduation. Some banks also offer special types of loans for older people. The senior loan contractually stipulates the age up to which it must be repaid in full – usually up to 75 or 80 years.

Lender: Not only banks grant loans

An alternative to loans from the bank are loans from private individuals, the employer or an insurance company. Find out what advantages these types of credit have for you and what you should consider.

  • The personal loan

    A loan from private individuals can be a loan from relatives or friends, but also a so-called private loan, also called peer-to-peer loan (peer = English for equal rights) or P2P loan for short. Other names for this type of loan are P2P lending or social lending (lending = English for credit, lending). Individuals can borrow money from private investors via online credit brokerage platforms. The personal loan is particularly suitable for the self-employed and freelancers who find it difficult to obtain a loan from the bank due to their irregular income. In turn, private investors can use the lending transactions to invest small sums at short notice and benefit from high returns.

  • The employer loan

    Another source of credit can be your own boss. The so-called employer loan, also known as employer loan or employee loan, is an employer loan that is often cheaper than a bank loan. The lending ties the employee to the company. The contact person for this consumer credit is usually either the HR department or the works council. The loan agreement should specify how the loan will be dealt with in the event of termination before the loan expires. There are several options here:

    • You can continue to pay the monthly installments as regulated in the loan agreement,
    • the favorable interest rate is adjusted to market interest rates or
    • You must pay the remaining credit amount to the company immediately if you have canceled yourself.
  • The policy loan

    If you have life insurance or private pension insurance, an insurance company can also be a lender. With the so-called policy loan, you borrow your life insurance. Since life insurance serves as security for the lender, the interest rates for policy loans are often as low as for special-purpose loans. Some banks also offer this type of loan.

These are the ways to apply for a loan

There are several ways to take out a loan. The most common is the application via the bank branch, but more and more loan contracts are also being concluded by other means. We explain which are.

  • The online loan

    In 2014, 32% of all loans in Germany were taken out online. Because you usually receive a loan approval within a few minutes with this type of application, the online loan is also called an instant loan.

    Even when you are looking for the best offer, you save a lot of time when you use an online comparison. This means that you receive several offers at once after an inquiry and do not have to inquire about the various offers yourself at the banks. In addition, the effective interest rate or real interest rate, which already includes all loan fees, is usually shown here. This will make it easier for you to compare the different loan offers. Other advantages of an online comparison:

    • The latest loan rates on the market are always shown in comparison.
    • Both direct banks and online banks are represented in a comparison. The costs for an online loan can differ greatly here, so it is important to compare the conditions.
    • When applying for an online loan, you save time and money because you can request a loan from several providers and ultimately choose the cheapest offer.

    With our installment loan comparison and car loan comparison you get an overview of current interest rates and loan providers. Our comparisons are free of charge and the credit request is non-binding.

  • The zero percent financing

    Many borrowers are not even aware of another type of application for a loan: For example, anyone who contracts zero-percent financing for the new laptop in the electronics business usually signs a loan agreement. The lender is a bank with which the dealer cooperates. We recommend that you do not conclude zero percent financing spontaneously, but first read through the contract in peace. Because often there is no right of withdrawal with this form of consumer credit. That is, even if you withdraw from buying the product, you will still have to pay the installments to the retailer’s partner bank.

Loans with a credit line: credit lines

Loans with a credit line: credit lines

Framework loans are not classic installment loans. Credit cards with a credit line include, for example, the credit card. You have the option to exhaust a certain limit and only pay interest on the amount claimed. The overdraft facility of your checking account is also a framework credit. You can use a limited amount in addition to your credit, in return you pay high interest, usually over ten percent. Since an installment loan is often cheaper than a regular overdraft facility, it is often advisable to reschedule the overdraft facility.

Some tips to take advantage of the best consumer credit rate

Not implying a duty to justify its use, consumer credit is at the forefront of the most requested and best known loans in Belgium. When a person requests a credit, he must wait for this loan for the successful completion of his personal project. In order to take full advantage of the amount of money obtained through this and to avoid falling into the vicious cycle of over-indebtedness, it is better to study all the offers and choose the one that is most advantageous.

To take out a loan for the purchase of consumer products, it has become very practical in Belgium. There are more and more private organizations and other financial institutions that offer personal loan offers in Belgium.

The negotiation…

The negociation…

Of course, the rate of consumer credit is rarely negotiable with the banks. This is what sets it apart from home loans. However, it’s not a crazy idea to want to try everything when thousands of dollars are put into play. Negotiation has always been an effective means. In order to make great savings and pay as little interest as possible. Consumer loan applicants who meet all of the conditions and have every chance at their side can expect a loan with favorable conditions from a bank or other lender. Not having a history of “bad payer” or other heavy debts outstanding, as well as loyalty to a lender can be assets to obtain consumer credit at the best rate.

The comparison…

The comparison…

It’s about taking a look at a serious credit website. Nowadays, these sites offer a handy tool that can help compare multiple credit offers at one time. In addition, the results are reliable and are displayed quickly. All the information concerning the granting of credit is also presented with these online rate comparators: conditions for obtaining a consumer loan, early repayment, application fees, advantages… The comparison allows all those who plan to borrow money, find the most favorable consumer credit offer for their situation.

The simulation…

The simulation…

For more concrete, digital communication has also allowed the use of an ingenious tool which is very useful in the field of credit. Thanks to an online consumer loan simulator, a credit applicant can start by making a kind of trial with the offer that tempts them. This provides important information: how much can he borrow? For how long ? Does the rate suit him? This information is essential to properly organize the financing of a car or for a project that is essential for the applicant.

However, it is always better to turn to a professional broker or other financial expert to be sure that you are making the right choice when it comes to consumer loans. The results of a simulation can only be indicative. Most lenders take many parameters depending on the profile of the borrower. The offer may be different from one profile to another because the creditworthiness, the income, the amount of the loan and its duration as well as the personal contribution of the borrower can affect the rate. Credit that is determined to be at risk could cost more.

Requirements for a loan guarantee on the part of the bank

If loan contracts are concluded, the borrower is usually required to provide collateral for this. With these collateral, the bank wants to minimize the risk that a change in the financial situation of the debtor will lead to a default on the loan. In the case of construction finance, the registration of land charges has generally prevailed as security. However, if the value of the property is not sufficient or if the loan is used for other purposes, such as opening a business, the suretyship can be used as additional security. A guarantee is provided by a person who then, in the event of the borrower’s insolvency, vouches for his obligations towards the bank.

Loan with a guarantor

Loan with a guarantor

The most frequently used guarantee in Germany is the jointly liable maximum guarantee. In this form, the guarantor waives the so-called objection of advance action. The bank can thus contact the guarantors as soon as the borrower is in arrears with even a single installment. In order not to have to pay for all of the borrower’s liabilities, the guarantee is limited by specifying the respective loans for which the guarantor is liable. In this case, however, it applies indefinitely. In order to protect the guarantor, who in some cases only has such a contract out of financial ruin because of emotional attachment to the borrower (example: guarantee of the parents for their child, guarantee of the spouse) Today, the conditions must be met for the guarantee to be accepted and to become final.

The perfect credit rating of a guarantor

The perfect credit rating of a guarantor

One of the most important requirements is that the guarantor has a perfect credit rating. As with the borrower, this is checked on the basis of self-disclosure, proof of salary and tax assessments. If the guarantor is independent, the bank’s balance sheets and business evaluations must continue to be submitted. On the basis of these documents, the solvency of the guarantor is to be determined and checked whether, in the worst case, the guarantor can pay the credit installments out of his income. If this is not the case, the guarantee cannot be accepted. Furthermore, the guarantor also checks the Credit Bureau data; this requires consent to the Credit Bureau clause. The payment behavior is to be assessed on the basis of this data.

If there are negative entries, for example from a loan that has already been canceled, the guarantee must also be rejected here. In order to be able to sign a surety agreement at all, the guarantor must still be fully operational. For natural persons, this means, for example, that they must be over the age of 18. The signing of the guarantor takes place at the bank on a specially created form. In order to grant the guarantor, like the borrower, the right of revocation, the guarantor must sign the declaration of revocation. This authorizes him to cancel the contract in writing within two weeks after signature, without stating reasons.