The topic of financing is omnipresent for most people. Even those with a regular income often have to look closely to cover necessary payments. Capital is not always sufficient—especially when a larger purchase is imminent. Whether it's a car or a new washing machine, such a loan can cover the needed funds. The offer for these kinds of loans is enormous, so consumers face a difficult choice. But not every loan is appropriate. With the most important information at hand, however, it is possible to find a suitable loan that ideally matches your requirements. A loan is always a form of credit. The term "loan" (Kredit) is colloquial and has become established over time. Legally, a loan is defined as the temporary provision of monetary or material value. In return for this provision, costs are incurred in the form of fees and interest.
The required loan amount is provided through a financial institution. The financing is granted by the lender to a private individual. Before granting, it is contractually recorded under which conditions the transaction will proceed:
- Amount of the loan
- Term and repayment
- Interest rate/Annual percentage rate/Nominal interest rate
- Fees
The individual terms of the financing are decisive for the quality of the loan. Consumers should make sure to choose a good offer when selecting an installment loan.
What loan amount is needed?
It is tempting when taking out an installment loan to not only cover the needed sum but also secure a little extra capital. However, you should bear in mind that a higher loan amount also means higher costs. It is advisable to take out the installment loan only in the amount required, even if the lending institution is willing to approve a higher loan.
Term and repayment
The term and repayment determine how long you are bound to the loan. Ideally, you are able to repay the loan in as few installments as possible. The fewer installments required, the lower the total costs. For small loans, a term of six months is already possible. Larger sums can also be spread over several years.
Regardless of the loan term, the monthly installments should in no case represent a financial burden that could lead to payment bottlenecks.
Interest rate, annual percentage rate and fees
The interest rate or annual percentage rate is a decisive factor in choosing the right installment loan. It largely determines the actual cost of the loan. The higher the interest rate or annual percentage rate, the higher the total costs. The contractually agreed interest rate is paid monthly with the installments. Interest payments and repayment of the outstanding principal therefore occur simultaneously. How high the interest rate is depends on the current financial situation and the chosen lending institution as well as the agreed terms. A low base rate ensures that consumer loans can be offered particularly cheaply.
What is the base rate?
The base rate is set by the regional financial authority. For Germany, this is the European Central Bank. Financial institutions settle their transactions via the ECB. It sets an interest rate for these transactions: the so-called base rate. If this is lowered, banks can conduct their business at more favorable conditions. These savings are then passed on to the banks' customers. The lower interest level makes it possible for more consumers to use credit. This, in turn, leads to an increase in borrowing and stimulates the country's economic situation.
Who can get an installment loan?
Any adult who is legally competent can take out an installment loan as financing. However, the conditions for granting are set by the lending institution. The bank wants to keep the risk of default as low as possible. For this reason, an installment loan is subject to a number of conditions. These often include:
- Permanent employment of at least twelve months
- Regular income of sufficient amount
- Residence in Germany
- Tax liability in Germany
In addition to these classic contractual conditions, there are a number of other factors that influence the granting of a loan. Which these are also depends on the lending institution and the type of loan.
Can I get an installment loan as a self-employed person or freelancer?
The classic basic requirements for an installment loan make it difficult for many groups to obtain one. This includes self-employed people and freelancers as well as pensioners and students. However, it is possible to secure an installment loan even if you fall into one of these categories. The required documents and proofs can be quite extensive. It is not uncommon to be asked for a guarantor. The guarantor steps in financially if the borrower can no longer pay the installments. For the self-employed, it is often the house bank that can enable an installment loan. The bank has a deep insight into the applicant's financial situation and can assess the existing risk very well. It also does not hurt to have a good relationship with your personal bank contact! Long-standing customers can generally expect fair and helpful treatment—exceptions for loan approval are therefore quite possible.
For which purposes are installment loans suitable?
There are hardly any limits to the use of an installment loan. Although a purpose of use is usually requested in the loan contract, this is only partly relevant for the granting of the loan. Nevertheless, it is advisable to answer honestly here. It is not necessary to disclose every detail, but a rough direction is important—car purchase, furniture purchase, moving, etc. One exception is the purchase of a house—due to the conditions offered. Banks provide special loans for mortgage financing that offer better rates than a regular installment loan. If it can be avoided, an installment loan should not be used to finance real estate.
Why are installment loans rejected?
The most common reason for rejection of an installment loan is poor creditworthiness. This means that the individual's risk profile appears unsuitable to the bank. The likelihood that the borrower will not be able to repay the installments on time is therefore very high.
Each bank proceeds differently to determine creditworthiness.
However, besides the proof of income, the Schufa query is particularly relevant for the decision. Another reason for rejection is often incomplete documents. This is frequently a problem with the automated processes of direct banks. Therefore, it is important to always submit all documents completely and correctly when applying for an installment loan. A rejection due to faulty documents can make a reapplication unnecessarily difficult.
How is individual creditworthiness determined?
The topic of creditworthiness is extremely important for any type of loan. It indicates how likely it is that the installments can be paid regularly and in full. Individual banks and financial institutions work with internal criteria and guidelines. For example, very different factors can be involved in the risk analysis:
- Age
- Type of employment
- Length of employment
- Income level
- Schufa score
- Current account data
The sum of these factors determines the internal creditworthiness value. This, in turn, determines the granting of the loan. The Schufa score is undoubtedly important. It is determined by Schufa and can be viewed by banks and other lenders. A Schufa query also reveals additional data about the applicant: in addition to personal data such as address, name and date of birth, it shows which current accounts exist, whether there are ongoing loans and which telecommunications contracts are present. Finally, it provides information about outstanding claims and their amounts.
A credit inquiry is also recorded and is visible to other lenders for ten days. If several inquiries are made by different lending institutions within a few days, this is visible. That can negatively affect the granting. The Schufa score is only negatively influenced by full credit inquiries. A simple Schufa information request does not affect the score.
Schufa score
The score value ranges between one and one hundred. The higher the score, the better. It is regularly adjusted by Schufa based on the information available to the institution. Many consumers do not know that there are also a number of other service providers of this type. Schufa is no longer the only source used to determine creditworthiness. Every consumer is entitled to check their own information free of charge once a year—with each credit agency. This free report should definitely be used to find and have incorrect entries deleted. The incorrect entry is usually corrected by the bank that provided the erroneous information. If, for example, an already repaid loan amount is still recorded with Schufa, the bank must inform Schufa that the claims have been settled. Schufa itself can only correct erroneous data to a limited extent.
Installment loan without Schufa?
More and more providers, such as we at MAXDA, offer the option of using an installment loan without a Schufa query. Ideally, these loans are granted quickly and easily. The higher default risk is compensated by a higher interest rate. Consumers should try to secure a classic installment loan with a credit check. Granting such a loan is usually less complicated than many consumers fear. The steps to obtain the MAXDA installment loan are easy to follow:
- Select the loan parameters flexibly—amount, term, installments
- Receive an individual offer based on the chosen parameters
- Submit the required documents
- Receive loan confirmation within a short time
A loan with immediate approval is popular with consumers because the money is available in the current account within a few days. Online, such a loan can be obtained easily, and the capital can be used immediately for the intended purpose.
Does the bank require collateral for an installment loan?
If the bank decides that the existing financial resources are not sufficient to cover the loan costs, the loan application is not automatically lost. Accommodating banks will work with collateral in such a case. A variety of things can serve as security.
Personal collateral
The first option is usually a guarantorship. In addition to the borrower, another person is liable for outstanding payments under a guarantorship.
Material or real collateral
If so-called real collateral is provided, the lien for this security is transferred to the bank. This is usually accepted for real estate or land. Tangible assets such as a car are of little interest; the likelihood that the borrower sells such assets is very high—so they are not a relevant security for loan approval.
Financial claims
It is possible to pledge capital claims from salary as collateral. In an emergency, the bank then has the immediate right to access wage payments. The same applies to payouts from insurance policies.
What does an installment loan cost?
The actual costs for a loan are determined individually for each loan. However, they always consist of the same factors:
- Loan principal
- Interest/nominal interest rate
- Fees
For the most transparent cost breakdown, consumers should definitely opt for a loan that works with clearly defined costs. It should be immediately apparent what total costs will be incurred. Interest or the nominal interest rate is usually the biggest cost factor. It is charged monthly on the outstanding balance. The monthly installment therefore not only covers the principal but also interest costs. How high the interest rate is depends not only on the current base rate but also on the terms of the loan. The loan amount and the length of the loan term influence the interest rate.
Is the interest rate/nominal interest rate fixed for the entire term of an installment loan?
For a classic installment loan, the interest rate is fixed. It is very rare for an installment loan to be issued with flexible interest rates. This practice is common for mortgages in the context of real estate financing.
Can repayment of an installment loan be suspended?
As a rule, it is not possible to suspend loan repayments.
If it is foreseeable that payment difficulties may occur for a certain period, consumers should definitely contact their bank advisor. Banks are very accommodating and aim to provide assistance to their customers. In a personal conversation, the reason why payment is not possible should be clearly explained. Most banks understand that even the best borrower may end up in an exceptional situation and need help. This is offered in the form of a deferral. Repayments are suspended for an agreed period in this case. Afterwards, loan repayment is continued as usual. The deferral extends the repayment period, and the borrower is charged additional interest for this.
Can you cancel an installment loan?
It is generally always possible to terminate financial products such as an installment loan. However, such a cancellation is associated with special costs. So if the borrower suddenly has a larger sum of capital available, it is not always the best idea to repay and thus cancel an existing loan. Redemption costs are very high. In such a case, it is more sensible to repay the loan as usual to avoid the extra costs.
Can I refinance an overdraft (dispocredit) with an installment loan?
It is possible to use funds from an installment loan to pay off an existing overdraft on the current account. However, since overdraft interest rates are usually very high, this is hardly worthwhile. Because with this refinancing not only the costs for early repayment of the loan come into play but also the extra costs due to the high interest on the overdraft.
Note
In many cases, it is worthwhile to pay off an ongoing overdraft with a classic installment loan. It can quickly happen that consumers fall into an expensive debt loop. The overdraft is covered with the salary payment. This leads to the salary not being sufficient to cover the month financially, and one falls back into the overdraft—the cycle begins again the following month. Repayment through an installment loan can improve the financial situation.
You should also ask the bank about the possibility of special repayments. Special repayments can significantly reduce the burden of the ongoing installment. Use available leeway consistently for special repayments.
Always compare installment loans
Since not every provider offers good terms for an installment loan, it is always worth comparing. Consumers should not only pay attention to interest costs—other areas also make a good installment loan:
- How easy is the approval process in comparison?
- How flexible is the loan in comparison?
- What are the termination conditions in comparison?
Can I take out insurance with my installment loan?
A credit insurance covers outstanding payments in the event of payment inability or the borrower's death. Such insurance / residual debt insurance is especially sensible for larger loan amounts. An unexpected financial bottleneck can always occur. Unemployment or an accident are classic examples. Insurance / residual debt insurance steps in if the borrower cannot bear the loan costs themselves.
What are the advantages of an installment loan?
A good installment loan quickly and easily expands your financial scope. The capital can be used for a variety of purposes. It is possible to conclude such a loan agreement in a significant amount within a few days. The loan amount is determined individually, but installment loans of up to €25,000 are certainly possible.
Where can you get an installment loan?
Installment loans are offered by branch banks and by direct banks. Which option is the better choice depends on the individual circumstances. Difficult applications are best handled through your house bank. The shared financial history provides a good basis for fair negotiations.
A standard installment loan, with or without Schufa, can also be applied for online just as quickly and easily. Fair conditions and good prices can be expected here. This way it is possible to secure an installment loan that ideally fits your requirements.
The MAXDA installment loan
- Installment loans from €3,000 to €250,000
- Installment loan without Schufa up to €5,000 possible
- Secure top advice and the best conditions at MAXDA
- Set loan amount, term and desired installment yourself
The monthly installments consist of the following components: principal repayment, interest and fees. MAXDA installment loans are granted for loan amounts from €3,000 to €250,000. If you are planning a purchase that cannot or should not be paid from savings, you will usually opt for an installment loan. At MAXDA, this can be chosen flexibly and paid out quickly.
How you can get the MAXDA installment loan
You can get installment loans from MAXDA starting at €3,000 with a term of 12 to 84 months. Interest rates for installment loans are somewhat higher than for mortgage financing, but significantly below overdraft (dispocredit) rates on the bank account.
As a prerequisite for the installment loan, MAXDA requires information about a regular net income of at least €850 per month and a minimum age of 18. If you do not meet these requirements, we can still arrange a loan for you. You only need to provide us with a liquid guarantor.
MAXDA installment loan – requirements at a glance!
- Minimum age 18 years
- Net income at least €850
- Alternatively name a liquid guarantor
More information about the installment loan
No upfront costs are incurred for your MAXDA installment loan request at any time; it is also completely non-binding. The interest rate determined for your installment loan remains unchanged for the entire loan term: this way you have an overview of all installments and costs from the start. For the installment loan arranged by MAXDA, unrestricted immediate repayment or a special repayment of your loan amount is possible at any time.
The well-known Beamtendarlehen can also be issued by MAXDA as an installment loan. Civil servants and public service employees as well as employees with more than 10 years of company affiliation receive an installment loan from MAXDA in the form of the Beamtendarlehen. This loan is characterized by particularly low interest rates, longer terms and very low installments.
The installment loan has existed in Germany since the 1950s. Especially in the areas of automotive financing and construction financing, the installment loan is indispensable today. It can therefore be advantageous for you as a borrower to specify a purpose for the loan: often you will receive even better conditions for purpose-bound installment loans. If you have any questions about installment loans, our loan experts are always available.