General information on taking out a loan

Loans can generally be divided into two different categories. On the one hand there is the bank loan and on the other hand the private loan. As the name suggests, a bank loan is granted by banks and credit institutions and a private loan is granted by private individuals.

Bank loans are granted to private individuals, companies and self-employed persons. The principle always involves a lender and a borrower. The lender, i.e. the bank or the credit company, makes the borrower an offer for an amount that it makes available to them.

The borrower, in turn, must repay this amount to the lender within a specified term, usually between 12 and 84 months. And they do not only repay the principal amount, but also interest and a processing fee.

Legal basis for loan agreements

A loan agreement is subject to the general law of obligations under the BGB and guarantees the contracting parties the so-called freedom of contract. A loan or credit is therefore a contract under the law of obligations that regulates the provision of money and the obligation to repay. Only when an offer from the lender exists and this offer has been accepted by the borrower does a loan agreement come into being.

If the loan or credit agreement has come into legal effect because the agreed prerequisites are met, both lender and borrower must fulfill this agreement. That means the credit institution must pay out the loan amount and the borrower must repay the instalments to the bank on time and in full within the agreed term, including the agreed interest and any loan processing fee.

Conditions for a loan

It is also possible for two or more borrowers to apply for a loan at the bank or credit institution. This has the advantage for the borrowers that banks are usually more inclined to grant a loan in these cases, because there are several people from whom they can demand their money if one person gets into payment difficulties.

As a prerequisite for granting a loan, credit institutions impose some conditions that the borrower must meet. On the one hand, a permanent job with a regular income of an appropriate amount is an advantage. There should also be no negative entries in the Schufa and the household calculation carried out should show a surplus so that the loan instalments can be paid.

Only when all these prerequisites are met will the lender release the loan amount.

At MAXDA, however, loans are usually also granted in difficult cases. The background is a large network that also includes Swiss banks. These do not work together with Schufa.

Processing fees for every loan?

Banks, savings banks and credit institutions deal with the loan processing fee differently when granting loans. For the administrative effort incurred, i.e. the advisory meeting before taking out a loan, the credit check and the final credit decision, some banks until recently charged a so‑called processing fee. This is listed in the loan documents and is added to the monthly instalment payments.

The processing fee is a certain percentage of the loan amount, which is either deducted from the loan amount before disbursement or added to it. The processing fee is charged only once or, at various banks, can be split into a setup fee as well as a fee for the final settlement of the contract after the end of the term.

The loan processing fee flows into the monthly calculation of the loan instalments and is therefore also a factor in the calculation of the effective annual interest rate. The amount of this processing fee varies from credit institution to credit institution and can vary greatly. When taking out a loan, the borrower should therefore still always ask about the fees or specifically look for an offer that does without a processing fee. According to the 2014 ruling, however, almost all personal loans are available without a processing fee.

A first basis for comparison for the different offers is the effective annual interest rate. When comparing, one should also take into account special conditions and other fees for early repayment of the loan. Comparison portals usually do not offer a real basis for comparison here, because hypothetical or minimum interest rates are indicated. A real comparison can only be made with individually prepared offers. Therefore MAXDA offers the service of requesting these offers from a large network of banks. Since MAXDA works independently, it can present you with the actually cheapest option from all offers. What is important to you in a loan agreement is of course clarified in advance.

Legal position on loan processing fees

In May and October 2014 the Federal Court of Justice (BGH) classified the processing fee charged by numerous banks as unlawful. The ruling prohibited future processing fees for personal loans. In addition, consumers were enabled to reclaim fees for loans they had paid less than 3 years earlier. Borrowers of instalment loans for vehicle financing and mortgage financing were particularly affected.

Often the processing fees charged by banks when granting loans were also stated in the so-called price-performance list of the respective bank. The borrower can in any case inspect this before concluding the loan agreement and thus obtain clarity about the amount of the expected processing fee. Those who already take these costs into account when taking out their loan can avoid unpleasant surprises in the end.

Federal Court of Justice rulings on unlawful processing charges for loans:

• BGH judgment of 8 November 2016, Case No. XI ZR 552/15
• BGH judgment of 9 May 2017, Case No. XI ZR 308/15
• BGH judgment of 13 May 2014, Case No. XI ZR 170/13
• BGH judgment of 13 May 2014, Case No. XI ZR 405/12
• BGH judgment of 4 July 2017, Case No. XI ZR 562/15
• BGH judgment of 4 July 2017, Case No. XI ZR 233/16

These rulings deal with consumer loans, business loans and building savings contracts and their loan processing fees, processing commissions and setup fees that were demanded by banks and savings banks. Permissible, however, are setup fees for building savings contracts and discount (Disagio). If, as a consumer, you have paid an unlawful loan fee for building society loans in the last 10 years or for other loans in the last 3 years, you can still claim a refund. Interest may also be claimed as part of this reimbursement.

The background to the case law is that effort arising from the bank's own interest may not be invoiced as a processing fee. This includes, for example, the creditworthiness check.

Loan processing fees: Transparency is important

Even if all points and costs are openly discussed in an advisory meeting with the employees of the respective credit institution, surprises for the borrower after conclusion of the contract can be ruled out. In addition to comparing interest conditions, the amount of the instalments and the different loan amounts, borrowers can also address the issue of processing fees when comparing different providers to reach a final result.

Until recently, various lenders could also charge processing fees for the final settlement of the loan agreement upon termination of the contract. However, the borrower can also find out about these costs in advance so that the costs to be expected are clarified directly when the contract is concluded. There are therefore a number of points to consider when a borrower takes out a loan or credit.

Good preparation for loans with processing fees

In order not to lose track of the various fees and costs, good preparation is an advantage. Much information on taking out a loan or on processing fees for a loan can also be found on the internet. If the information is overwhelming due to its sheer volume, you should take your questions and concerns into a detailed advisory meeting with an employee of the credit institution.

It can be useful to note the relevant questions in advance so that nothing is forgotten during the discussion and the processing fee information is not overlooked. Well prepared for taking out a loan, private individuals, self-employed persons and freelancers who want to cover a specific financial need through a credit institution should not go wrong.

Especially when expenses are due that cannot be covered at once from monthly funds, a visit to the bank or the offers from the various credit institutions can be very attractive and helpful.