PERSONAL LOANS AND THEIR ALTERNATIVES - GET THE RIGHT LOAN FOR YOUR NEEDS

WHAT IS A PERSONAL LOAN?

There are different types of personal loans. They can be granted by private individuals or to private individuals:

1. Bank loan to private individuals: This allows you to finance major consumer spending such as buying a car, new furniture, electronics, a vacation or similar. This type of loan is also known as a "consumer loan" or "installment loan". You need a good credit rating and a regular income from employment.

2. Loan from anonymous private individuals: In this case, you take out a loan from private individuals who are referred to you via a platform. The interest rates are usually higher and you also pay a commission fee to the brokerage platform. One advantage is the lower credit rating requirement - a medium credit rating is often sufficient to get a loan and you can also borrow money as a self-employed person.

3. Loan from private friends or family: With this form of personal loan, you borrow money from friends or family. You need to find someone who has the money available and would lend it to you. This loan is usually interest-free.

WHO GRANTS A PERSONAL LOAN?

Depending on the variant, a personal loan can be granted by banks, private individuals or various platforms, friends or relatives.

WHO IS A PERSONAL LOAN SUITABLE FOR?

As a rule, you do not have to specify a purpose for a personal loan - or you can use it freely to finance travel, consumer goods or for debt restructuring. As you normally do not need a regular income apart from a medium to good credit rating and, depending on the provider, a personal loan is particularly suitable for the following professional groups:

• Self-employed & freelancers: You have a better chance of getting a loan, especially with private loans via platforms, as your financial situation is assessed comprehensively.

• Students or trainees/apprentices: Depending on your financial situation, you can often take out a personal loan with a low income.

• Pensioners: Advanced age is often less of a problem with personal loans, as the term is correspondingly shorter.

• Managing directors, shareholders and board members: Despite their high income, banks rate this income group as higher risk.

WHAT REQUIREMENTS DO I HAVE TO MEET FOR WHICH PERSONAL LOAN?

As a personal loan is usually granted without collateral, your financial situation will be checked all the more closely and carefully and a credit check will be carried out. The basic requirements for a personal loan from the bank are in most cases:

• Age of majority

• Residence in Germany

• Possession of a German bank account

• Good credit rating

• Regular salary from employment (incl. submission of several payslips)

• Functioning budget calculation (affordability of the installment)

The requirements can vary depending on the bank; with some banks, you also have the chance to get a personal loan as a self-employed person without a regular income.

IS THERE A MAXIMUM AMOUNT FOR PERSONAL LOANS? WHERE CAN I FIND A CLEAR CALCULATOR?

In principle, there is no upper limit. However, if you take out a loan from relatives or friends, you must make sure that the interest rates are not too low or non-existent. Above a certain amount, you must ensure that your personal loan is not considered a gift and therefore subject to tax.

PERSONAL LOANS IN COMPARISON - CONDITIONS

The term of personal loans is usually 1-10 years, the interest rates and the amount of the loan installments for your personal loan depend on various factors at banks:

Credit rating: The better your credit rating, the lower the interest rates - because in this case the bank can assume that it will always receive its installments on time.

Type of interest rate: If you choose fixed interest rates, your interest rate remains the same for the entire term; with variable interest rates, the rate is regularly adjusted to the prime rate. However, there is always a clause in the small print that allows banks to increase interest rates in certain exceptional cases, even with fixed interest rates. When comparing interest rates, always pay attention to the effective interest rate. This is made up of all factors such as interest, ancillary costs and processing and account management fees.

Tip: The current effective interest rates at banks are currently between 8 and 10% (as of February 2024).

Salary income: The possible loan amount of your personal loan depends on whether you have fixed salary income, how high it is and how long you have been working for the company.

You can use a loan calculator online to get a rough overview of the installment you will have to pay depending on the loan amount and how high the interest rate will be.

Private loans via platforms are granted according to similar criteria, but you have a better chance of being approved for a loan even if you have a medium credit rating and irregular income from self-employment.

Tip: The brokerage fees are not included in the effective interest rate and are additional.

Most of the costs are usually waived for loans from friends or family, but both you and your lender have less protection in the event of a dispute. We therefore recommend that you draw up a private loan agreement that includes the amount of the loan, the term and the fees.

DO I ALWAYS NEED A CREDIT CHECK FOR A PERSONAL LOAN?

Yes, banks and brokerage platforms for private loans always carry out a credit check. This normally consists of the following points:

• Monthly net income

• Type of employment (self-employed or employed)

• Marital status (maintenance obligations)

• Housing situation (rental costs)

• Data from the creditworthiness database (Schufa query)

• Existing debts (monthly repayments)

• Functioning budget calculation that allows a credit installment.

WHAT DO I HAVE TO CONSIDER?

If you take out a personal loan from the bank, it may require accident, loan default, unemployment or occupational disability insurance. The rates for this are in addition to the loan installments. In addition, banks that are not your principal bank will in most cases require a corresponding transfer of your salary account.

What alternatives or other forms of financing are there?

If a personal loan is not an option for you, for example because you have a negative credit rating or do not have a regular income, you can consider a pawn loan. The advantages of this type of loan are

• Pay out immediately

• No credit check

• No income required

• Flexibly extendable on a monthly basis

• No personal liability

All you need for a pawn loan is collateral that you can use as security. You can check the maximum loan amount online, and the loan can be processed in person at a branch, by post or with a collection service.

Tip: If you don't have any collateral that you can pawn, you can also use your car as collateral and continue driving during the term of the loan.

QUESTIONS AND ANSWERS

How quickly will I get my money paid out with a personal loan?
Depending on the amount, the payout takes between 1 and 5 working days

Can I get a personal loan without a credit check?
Unfortunately, this is not possible. If you need a loan without a credit check, a pawn loan is a sensible alternative.

Can I get a personal loan without being employed?
Banks and private lenders always require a basic income. Relatives and friends or pawnbrokers can lend you money without this requirement.

What alternatives are there to a personal loan?
If you want to borrow your money regardless of your financial situation, a pawn loan is suitable for you. You are only liable with collateral.