All you need to know about loans in Germany

Terms of credit in Germany

What is SCHUFA?

What are the Terms of a loan in Germany?

Three main conditions

There may be many reasons for taking loans in Germany. Maybe you need to buy a house, maybe a car or you need some money to start your business idea. All that sounds good, but for that you need to know a few things about the credits. The terms of credit in Germany are a very important item you should know well before applying for a loan in Germany. There are three conditions for a loan that must be met in order to get a loan in Germany:

  1. You must have at least 18 years;
  2. You should have an address in Germany (important for creditworthiness verification);
  3. There must be a regular income (important for interest payments and loan repayments).  

In addition to these conditions, you need more be able to prove consistent and sufficient proof of income (2-3 payroll), and have good creditworthiness (SCHUFA). All of this varies from bank to bank, depending on the bank or association from which you take the loan.

 

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Need to find the best deal

Check Offers

People often don’t take advantage of this, but a loan in Germany is a product like any other “you can shop around”! There is no need to adhere to your bank. It is advisable to look at comparison websites that can provide you with a quick idea of ​​what is possible in your current situation. 

There are numerous websites. I recommend you all check them out to use the competition to your advantage.
A wider range of choices for your special needs. Many more competitive prices and flexibility in installments. SCHUFA result is still an important factor in getting the loan. All in all, take a look at the entire offer before you take the loan.

Credit insurance in Germany

Should I take them?

When borrowing you often offer a variety of credit insurance. You probably wondered if you would like to add credit insurance. Most people have this type of insurance rejected or accepted automatically, without knowing whether this is the right kind of insurance for their needs.As with all the insurance, the determination of needs differs from person to person due to different lifestyles and obligations.

Credit insurance can be beneficial for some, but sometimes just an unnecessary expense for others depending on one's situation. Knowing what a credit insurance can help you make an informed decision. Credit insurance in most banks in Germany does not affect the decision to obtain a loan. Therefore, if you are taking insurance for this reason, know that you will not be helped. Think carefully about the insurance, because it's a good thing, so it's sometimes an unnecessary cost that will cost you sometimes to the 2000 Euro in addition to your credit.

What is a schufa?

What does Schufa mean in Germany?

Schufa or a credit investigation company that estimates creditworthiness.

It is about the creditworthiness of potential buyers to protect themselves from credit failures. Ime SCHUFA is derived from the phrase “Schutzgemeinschaft für Absatzfinanzierung” (Protective Association for Financing Sales), founded in 1927. Accordingly, SCHUFA primarily collects data through contracts that are essential for the performance of payments.

Depending on your SCHUFA estimates of your credit ability, you can determine, for example, whether your bank will open a current account with a credit card or what interest you have to pay for a loan, whether or not your bank will approve the loan. The higher the risk for the bank (the worse your schufa report), the less your chance of getting a loan.

Every payment you make, every impossibility charged from your account, is in Schufa. So be careful when it comes to managing your finances. Try to make sure you always have money in your account when you need to withdraw money for utilities and other things from your account. All this "spoils" your creditworthiness and as a result it is impossible to get a loan or get a loan with very high interest rates.

If you want to inspect your SCHUFA report you can unsubscribe it once a year for free. Every next time it is paid. Download an internet form, fill it out and send it.

You can download it here.

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Card types in Germany

Credit or Prepaid Cards?

There are several types of cards in the German market. We'll mention some of them.

Revolving credit cards

Revolving credit card is a card with an approved personal spending limit that represents a revolving credit, or "self-generating". The client according to his wishes decides on the amount of loan he will use, on how and on how to repay the loan. If the client does not want to pay the costs at once, then the unpaid costs become the utilized part of the approved loan to which the client pays interest.

The Bank as the card issuer determines the minimum percentage of the loan used to pay monthly, for example 5 or 10 percent of the loan used. Credit card as well as debit can be used to raise cash at the ATM and to pay in the merchant-service network.

Example: Mastercard Gold

Debit cards

Debit cards are cards issued by banks with various deposit accounts. They serve to dispose of the money in the account they are related to. Only the ones that are in the account can be used, for example, from your monthly salary. This means that these are non-credit cards. Transactions carried out with this type of card are cash and transaction transactions. Although debit cards are generally not linked to the interest rate, they are subject to payment of certain fees. In most cases in Germany, this card is obtained when you open a current account and is mostly free.

Prepaid cards

Prepaid cards are payment cards most often not linked to a credit or debit account. As a rule, it's about anonymous tabs (say to the donor), but on the other hand they can be personalized with the person. As the name suggests, it is about prepaid cards, that is, cards that are either pre-denominated to an amount (e.g., a phone card), or they make a payment of a certain amount (charge) to the card that is then available free of charge student cards for food).

Example: Viabuy

More about credit cards in Germany here.

P2p loans

Yes or no?

Peer-to-peer lending is the practice of matching borrowers and lenders through online platforms. Borrowers can often access funds quickly and usually at lower interest rates than those offered by their local banks, making it an attractive loan alternative for banks. Loans issued often consist of many different lenders ranging from individuals to institutional lenders.

Individual and professional lenders benefit from being able to lend money to a range of interest rate based on the credit rating of the platform. Since lenders usually finance only part of the loan and the amount lending to many customers, lenders can potentially receive constant, attractive returns while at the same time spreading the risk through multiple borrowers.

P2P lending has experienced rapid growth because people who need a loan are looking for alternative banks.
With this method it is easier to get a loan and not look at Schufa, but if you do not look at schufa often higher interest rates of the loan that is approved.

by | April 23, 2023

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