People in Germany now finance numerous consumer spending via installment credit, which is often referred to as consumer credit. The uses range from the purchase of a new car to the purchase of a smartphone, so that the loan amounts often move from a few hundred to more than 20,000 euros. We would like to inform you in the following guide to the consumer credit and its properties.
Key features of consumer credit at a glance
- Good planning of costs (credit installments)
- Free use of the loan
- Finance without equity / reserves
- Free installment breaks
The properties listed above today have almost every consumer credit, which can be characterized for example by the fact that the payable loan installments are very easy to calculate. This is due to the fact that the loan rate does not change throughout the term, since both repayment and interest remain identical in terms of amount. As a rule, there is a free use of the loan amount, so that the borrower can decide completely independently of the bank, for which purchase he would like to use the consumer credit.
In contrast to the mortgage loan, consumer loans are usually granted without the borrower having to contribute equity to the financing. Special repayments are almost always possible these days and usually even free for the borrower. Banks are also increasingly offering installment pauses for free if the borrower is temporarily unable to pay the agreed loan installment.
The essential conditions for consumer credit
As a rule, the consumer loan is given in the form of an installment loan. Among other things, this means that the borrower can usually choose between maturities that range from 6 to 72 months. This usually results in loan installments ranging between 25 and 300 euros per month. With the loan sums, such consumer loans are also very flexible, because depending on the loan option, these move between 500 and 50,000 euros. On interest rates, the loan seeker should know that there are two groups of banks. The first group arranges the loan amount to be paid exclusively according to the term and the loan amount. Alternatively, there are credit institutions that provide the same interest rate to all customers regardless of their term and loan amount. The other group of banks estimates so-called credit-based interest rates. In this case, the APR actually payable by the customer depends on how the bank rates its creditworthiness.
In the overview, it is the following conditions that are typical for an installment loan and thus often for a consumer loan:
- Loan amount between 500 and 50,000 euros
- Terms between 6 and 72 months
- Interest rate either credit-dependent or credit-independent
- Average effective interest rates between 2.99 and 8.99 percent
- Special repayments usually possible at any time
In what form is the consumer credit offered?
By means of consumer credit it is possible to finance private purchases. Not all banks offer this type of loan under the title of consumer credit or consumer loan, but alternatively use terms such as personal, consumer or general purpose. Despite these different names, the core is always consumer credit, as private individuals as borrowers generally do not have any business investments, so almost all purchases in the consumer sector are financed through consumer credit.
This is often one of the following expenses to be financed:
- buying a car
- Buying new furniture
- Acquisitions in the field of consumer electronics
- Purchase of new household appliances
- holiday trip
- removal expenses
Since consumer credit is an absolute standard loan, the credit decision usually also takes place by means of a standardized procedure. This means that only rarely employees deal with the loan application on an individual basis, unless the loan is taken up in a business office. Otherwise, there are almost always automatic credit scoring systems that are used, for example, by the direct banks or also by those branch banks that provide consumer loans via their own website. However, there are not insignificant differences in consumer credit in terms of the conditions under which the loan is requested. We would like to discuss these requirements in the following section.
Under what conditions are consumer loans approved?
The basic requirement for the award of each consumer credit is that the loan seeker is of legal age. As a rule, he has automatically achieved full capacity for business unless he is under guardianship or mentally handicapped. In all other cases, the age of majority together with automatic unrestricted business ability leads to the fact that the loan seeker is at the same time creditworthy. In the second step, the bank must then check the creditworthiness (creditworthiness) of the applicant, which is usually done on the one hand by querying the Private Credit data and on the other hand by proof of a regulated income.
In addition to creditworthiness and creditworthiness, there are sometimes other requirements that the customer must meet in order to obtain the consumer credit, namely:
- Residence in Germany
- No existing loan installments
- Positive balance in the income and expenditure account
- Income of at least € 1,200 a month
- Permanent employment contract outside the probationary period
- Co-applicant or security must be provided
However, some consumer loans are also given on condition that the borrower has a negative entry in the Private Credit. Such consumer loans are then special loans, which are usually referred to as credit without Private Credit. However, you will not find them at ordinary banks, but they are usually granted through credit intermediaries and, ultimately, banks that are predominantly located in Switzerland or Liechtenstein.
For consumer credit, do not pay attention exclusively to interest
Since today almost every financial institution offers a consumer credit in the form of an installment loan or a disposition credit, you should make a comprehensive credit comparison before selecting the loan. This is very easy, especially for consumer loans, because they are consumer loans that are subject to stricter legal requirements. This includes, for example, that the banks are obliged to communicate the effective interest rate and its composition on the basis of the price information ordinance. If the effective interest rate is known, different offers can be easily compared.
There is a kind of trap, however, whenever banks rate a credit-based interest rate. In this case, you can not of course use the loan calculator to calculate and compare the effective interest rate. Because such online calculators offer no way to capture your credit rating in the form that could be determined on this basis, a fixed effective interest. In that case, you will actually need to contact the relevant credit institution individually and make a loan application to know what interest rate you would pay based on your credit rating.
Basically, it is so important to deal with the effective interest rate and to compare the offers in this regard. Nevertheless, you should not forget at this point that there are of course other important conditions and contract details far away from the interest rate for consumer credit. This includes, for example, a possibly calculated account maintenance fee or other costs that may be incurred in addition to the interest. For example, some banks only grant consumer credit if you take out a residual debt insurance policy that protects you from the financial consequences of long-term unemployment, illness or disability. However, such residual debt insurance is not cost-effective, but with a loan amount of, for example, 10,000 euros, it may well happen that a one-off fee for the insurance in the amount of 300 or 400 euros. In addition, you should also check with the Consumer Loan, if free special repayments are possible throughout the term, if you later intend to make an early redemption or at least partial repayment of the loan.
Determination of disposable income as a basis
Before you make a credit comparison, you should first determine your free disposable income. This is the basis for how much the credit can be that you later agree with the bank on consumer credit. Without knowing what maximum loan rate you can afford, the calculation of consumer credit makes little sense. After all, it is usually calculated on the basis of the desired loan amount and the duration, which may be the monthly rate. The income and expenditure bill is easy to set up because you have to compare the monthly income, usually your salary, to the regular expenses such as rent, insurance premiums and cost of living. If a positive balance emerges then, there is usually nothing to prevent the taking out of a consumer loan. It becomes critical when there is no disposable income, so your spending is higher than the income. In this case, you either have to reduce expenses or make other arrangements with the bank, which still makes lending possible.