The consumer loan – facts worth knowing and useful tips

Consumer loans are freely usable. Among other things, this form is also called consumer or personal loan. These loans are intended for private individuals and are often used to finance vacations or to settle existing debts.

Repayment is conveniently made in pre-determined installments. As a rule, these loans are granted without guarantees or collateral. A pay stub is still required by banks to calculate whether the loan amount and monthly payment are in relation to net income. In most cases, the effective annual interest rate is between 1.99 and 3.99 percent.

For whom the consumer loan is actually worthwhile

The consumer loan always makes sense when you need to be flexible yourself. This type of loan is not tied to a lot of collateral and is not subject to a fixed purpose and can be used freely.

As a borrower, you can appear as serious as any other cash payer. Another advantage is the discounts that one can benefit from. Many merchants offer discounts only for this payment method, especially when the sums involved are large. For real estate or modernization loans often need to prove own funds and property. Here a good credit rating and a sufficient net income is enough. For individuals who are planning major purchases, are considering debt restructuring, or want to enjoy an expensive vacation, the consumer loan is ideally suited.

Tip: the consumer loan is not suitable for the purchase of a car. There are special car loans for this type of purchase, which are earmarked but also have much lower interest rates. Straight one comes with used cars thereby substantially more favorably away – only right, if these are financed still up to ten years after the erstzulassung.

The options for applying for a consumer loan

The consumer loan can be applied for through your own bank. However, there is also the possibility of obtaining various offers from banks via the internet. The application itself is filled out online, if necessary, required wage or salary statements can be sent directly with it. The transfer of data is usually done through a secure SSL connection. Subsequently, a personal offer is sent by mail. You remain completely anonymous until you identify yourself through the postident procedure. Only after this step, the loan application is fully and finally reviewed. The disbursement takes place in a period of two to seven working days.

Tip: the application via the internet is not associated with costs at reputable banks.

What are the requirements for a successful application

A regular monthly income is essential for a successful credit application, as is employment in a permanent position outside the probationary period. Furthermore, a permanent residence as well as the age of majority are mandatory.

How high the minimum income should be, each bank decides differently. There are no fixed figures. Lump sums for maintenance and living expenses are deducted from the income also for other persons in the same household. For freelancers and self-employed people the banks generally require a higher minimum income.

Loans can be divided into installment loans and overdraft facilities as well as into freely usable and earmarked loans.

Required documents for the consumer credit application

For each consumer loan application, various documents must be submitted. For employees and pensioners, this usually means less effort than for the self-employed or freelancers. If the bank requires pay slips, or bank statements, these are usually to be provided for the period of the last two to three months.

Employees in permanent employment

• Copy of the identity card
• Wage or salary statement
• If applicable. Complete, unredacted bank statements
• Self-disclosure

• Copy of ID card
• Pension statement
• If applicable. Complete, unredacted bank statements
• Self-disclosure

Self-employed and freelancers

• Copy of the identity card
• Proof of income (z.B. Account statements, loss and profit statement, income / surplus statement)
• Economic evaluations
• Self-disclosure

Important information for filling in a loan application form

Of course, no bank will issue loans without some type of collateral. In the case of consumer credit, the bank will check the information provided very carefully. In addition to the above-mentioned required evidence, it is important to fill in the information on the loan application carefully and, above all, honestly. The following points are found in each application:

– personal details
(date of birth, nationality, marital status, home address)
– details of the living space
(in case of ownership or renting)
– occupational group
(for example: employee, skilled worker, self-employed person)
– duration of employment
(if necessary. Time limit)
– financial circumstances
(z.B. Income from employment, alimony, other income)

SCHUFA stores not only current addresses, but also those of previous years. This query serves as an additional feature for a better SCHUFA comparison. The question about financial circumstances should always be answered correctly. In case of doubt, you have to prove the information given anyway. On the one hand, these statements help in calculating the loan amount, the term and the installments to be repaid, on the other hand, false statements lead to the fact that you can be punished with credit fraud. In § 263 of the code you can find all the details about it. Even incomplete information and documents can be considered as fraud.

Note: even during the credit period one is obliged to inform the bank about changes in one's financial circumstances.

Loan amount, term and repayment of the loan

The amount of the consumer loan is freely selectable. Depending on the bank, amounts from 500.00 euro to 50.000 euros can be applied for. The duration of the repayment can also be freely chosen. The term of the loan is between 12 and 84 months. Rarely credit amounts up to 75.000 euros and a term of 120 months offered.

The maximum realizable repayment rate is calculated by the bank, but it is possible to make a preselection yourself. The exact conditions and the effective annual interest rate can be found in the personal loan offer of the bank after submitting all required documents.

Depending on the creditworthiness: the interest rates of the bank

To get the consumer loan for best possible conditions, there are some things you can do yourself. First and foremost, the banks' own creditworthiness plays a major role in granting the loan and calculating the interest rate. The net income of the household and the data records, as well as probability values of the SCHUFA are included in the decision. Information on monthly costs is provided during the application process. The bank itself, however, does not calculate with the values given there, but with flat rates, which can vary depending on the credit institution.

The theoretical calculation is then compared with the requested loan amount and the desired term. It is quite possible that one's own credit rating will be better if the loan has a longer term. In any case, it is worth considering having a second person, belonging to the household, registered as a secondary borrower. Through additional borrowers or even solvent guarantors, the creditworthiness is assessed significantly higher by the banks. The advantage: lower interest rates are offered and also higher loan amounts and longer terms are made possible by the credit institution.

Unscheduled repayments, payment breaks and early loan redemption

Particularly if you expect higher incoming payments in the near future, you should take a look at the contractually regulated unscheduled repayments. Many banks now offer this option free of charge. Thanks to the unscheduled repayment, you have the alternative of paying higher installments in the meantime, if you can afford to, and thus shortening the term of the loan. In addition, banks now often offer annual payment breaks. If it becomes nevertheless once closely, one can suspend problem-free with some rate repayments of the consumer credit.

If desired, you can also redeem a consumer loan early and thus save interest. In most cases, the bank insists on an early repayment penalty in the event of premature repayment. If the loan has a remaining term of more than one year, this amounts to up to one percent of the remaining debt. For terms of less than 12 months, the penalty interest is 05, percent of the remaining debt.

Hidden payments

The interest rate for the annual percentage rate of charge also includes, for example, the institution's agency and processing costs. The effective interest rate is regulated by the price indication ordinance (pangv) and offers a very good opportunity to compare different loans with each other. However, in most cases not all costs incurred are included in the calculation. These include the following payments:

• Account management fees
• Residual debt insurance
• Partial payout surcharges
• Adjustment costs

The account management fees do not have to be included by the credit institutions in the effective annual interest rate. The situation is no different for residual debt insurance, which protects against the consequences of illness, unemployment and death. The cost of this type of insurance is only included in the APR if it is mandatory to take it out. But beware, depending on the provider of the residual debt insurance there are contractually regulated conditions. Often, these insurances only take effect after a more or less reasonable waiting period.

Likewise, partial disbursement surcharges are not taken into account in the stated effective interest rate. If you want to adjust the installments for the loan after the fact, high costs are often incurred. This aspect should also be considered when choosing a suitable institution.

Note: it is usually easier and also cheaper to provide other collateral if the bank asks for residual debt insurance. Occupational disability insurance or capital-forming life insurance is accepted by most institutions in place of residual debt insurance.

Cancellation of the loan

Many do not concern themselves with this topic, but it is quite possible to cancel a loan. If the interest rate is fixed, borrowers who take out insurance before the 11. June 2010 have concluded a contract, a notice period of one month. From a later date, a new EU directive takes effect. Loans can be terminated at any time without notice. Consumers have the option to reschedule the loan to another bank and secure interest rate advantages. If the outstanding balance is not transferred to the former lender within two weeks, the loan is considered not terminated.

Final tips on consumer credit

Before you apply for a consumer loan, you should not only compare individual institutions and interest rates. In the best case, take a little time to get a good overview of your finances yourself before applying. The easiest way to do this is to take a look at the account statements for the last six months. It is so much easier to split your income and regular household expenses. Even irregularly due insurance premiums or planned purchases should be included in their own bill. As well as reserves or special payments, such as an annual bonus, the christmas bonus or similar things.

Basically, be careful with credit free loans that are offered online. Many applicants do not get the loan they want and often pay questionable upfront fees. If the coveted amount is paid out after all, the unreasonably high interest rates mean the end for many at the latest. Borrowers get into trouble again and often get into even more debt.

Conclusion

The consumer loan is suitable for all those who want a flexible use credit. Especially the easily adjustable terms and easy to calculate repayment rates offer private consumers an optimal alternative to other, common models.

The application is quickly completed both at the house bank, as well as online. Due to the small amount of evidence required, this also means time savings and significantly less effort for the borrower.

When applying for such a loan, it is advisable to pay attention not only to the APR. Aspects such as early redemption, unscheduled repayment and any additional insurance should also be taken into account when deciding for or against a credit institution.