Personal loan
A loan is the provision of money. In return, the lender charges interest as security and compensation for its service. To obtain a loan, an application must be submitted to a credit provider. This can be one's own bank or processed via credit brokers such as Maxda. The exact loan amount, the interest rate and the term of the loan agreement are specified in this contract. Before approving the loan, credit companies based in Germany obtain a Schufa report. If this report is positive, nothing stands in the way of the loan being granted. In addition, the applicant should have a sufficiently high and secure income. Alternatively, it is possible to name a guarantor who meets these requirements.
There are a variety of credit institutions on the credit market with different loan offers. For example, there is the personal loan, which can be obtained unsecured or secured. For the unsecured version of a loan, it is approved when the borrower can demonstrate creditworthiness and a secure monthly income. In this case the credit institution waives other collateral, since the loan amount is determined by the borrower's creditworthiness and any investments the borrower has with the lender. A secured personal loan, on the other hand, requires real-estate collateral, for example when purchasing or building a property. The property can be financed with a personal loan and the lender holds the value of the property as security.
Personal loan without real-estate collateral
The personal loan is a loan paid by the financial institution to the customer without collateral. This applies to customers who can demonstrate a secure income. Thus the lender is confident of getting their money back without problems. The approved loan amount is normally reasonably high, as it is below any deposits the customer has with the credit institution. The loan term is therefore manageable. An overdraft loan (Dispokredit) also represents a form of personal loan. A personal loan can also be arranged via a guarantee (Bürgschaft), but more on that later.
Requirements for the personal loan
In summary, it can be noted that a personal loan granted by a financial institution is aimed at the customer's good creditworthiness. This includes investments and a secure income. In this case the lender waives collateral in the form of tangible assets as is common with consumer credit. For a personal loan the borrower's creditworthiness is the only relevant factor. Thus no security in the form of a Grundschuld for property construction is required. What matters for this personal loan is the customer's creditworthiness, no negative scoring in the Schufa (Schutzgemeinschaft für allgemeine Kreditsicherung) and the proper repayment of the scheduled installments. For example, a borrower could take out a personal loan for remodeling or modernizing their house without a Grundschuld being registered by the lender. This also means that there are no costs for a notary or for registration. If a guarantor is added to the loan agreement, a higher loan amount can certainly be granted. The guarantee is also a form of security. A condition, of course, is that all accounts and deposits are with the credit institution where the loan is being applied for. In this case the lender reserves the right to check incoming payments and transactions on the accounts for their security.
The secured personal loan
For a secured personal loan, lenders require collateral. It is not sufficient, as with the personal loan without real-estate collateral, to show good creditworthiness; the financial institution here requires tangible security. In most cases this is a property that is financed with the secured personal loan and serves as a guarantee for the lender. This means that the unsecured personal loan is usually granted in smaller amounts than the secured personal loan, since the latter involves collateral, for example a property. The secured personal loan often has a lower interest rate because the risk for the lender is significantly reduced by the described collateral, as the lent money has a concrete countervalue. The lender's approval for the personal loan is determined by an appraisal. No court fees are incurred in this process. With a 25-year term, the personal loan stands alongside construction financing.
Personal loan as an employer loan
The employer loan is a form of lending that has been in use for quite some time. The personal loan, in addition to specific rights, also has special conditions and individual repayment modalities. Usually it is large corporations or companies that grant loans to their employees. The reason is often to bind employees to the company. Personal loans are offered to employees in various positions. The bulk of loans goes to Prokuristen or senior executives, i.e. employees who hold higher positions in management. This type of loan is also called an Organkredit; it differs from the normal personal loan by other conditions. Any employer can grant loans to their employees, and the industry does not matter. However, it is taxed differently because the employer sets the conditions. As a rule, such an employer loan is usually granted on more favorable terms than a normal loan from a financial institution. The employee can not only participate in fixing the interest conditions, but can also agree with the employer on the repayment installments and the loan term. This form of loan can also be described as an installment loan due to its repayment modalities. The company is free to decide to whom it grants a loan. Collateral is not required because the monthly salary is available if no regular payments are made. If the employment relationship ends before the loan matures, the employer loan becomes immediately due. The term and conditions of these loans are explained through discussions between employee and employer. Some companies even include the employer loan in the employment contract. Since employer loans are subject to different tax rules, both employer and employee must report the approved loan to the tax authorities. For employer loans that a bank grants to its employees as employer, special regulations apply which can be found in German tax law.