Overview of requirements

Banks and financial services companies grant various loans to new and existing customers every day. However, many consumers do not know which requirements must be met in order for a loan to be granted.

Banks are obliged, however, to check applicants for certain requirements with every loan. Some of the conditions for granting a loan are legally prescribed. Other requirements have arisen from banks' risk management.

Credit capacity as a requirement

• In principle, banks always check an applicant's credit capacity and creditworthiness (credit rating) when granting loans.
• The check of credit capacity is less extensive. It is still a requirement for taking out a loan. Credit capacity exists when a consumer is legally allowed to take out a loan.
• The borrower's income has a particular influence on credit capacity.
• All natural persons can sign a loan agreement from the age of 18. Banks and financial services companies are not allowed to grant loans to minors. To grant loans to minors, credit institutions need the consent of the guardianship court.
• You can find out about the requirements for the MAXDA loan here

Assessment of creditworthiness

Before any loan is granted, the applicant's creditworthiness is also checked. This assessment distinguishes between personal and material creditworthiness.

The personal creditworthiness assessment deals with the customer's personal presentation. Occupation and family situation are also taken into account in the personal creditworthiness assessment. In some cases, the place of residence, i.e. the borrower's social environment, is also included in the evaluation.

The material creditworthiness assessment covers the applicant's financial circumstances. Various aspects are examined extensively. In this context, banks and financial services companies check the applicant's assets and liabilities.

In the context of long-term construction financing, the customer's surplus assets are determined in loan records. Of particular importance in the material creditworthiness assessment, however, is the ability to service debt.

Ability to service debt as a condition for lending

The ability to service debt is determined by comparing income and expenses. If all expenses are deducted from available income, at least an amount equal to the desired loan installment should remain. If a sufficient amount remains, this is referred to as demonstrable ability to service debt. In this case, the borrower can service the loan's repayments.

Generally, income consists of regular earnings from employment. In these cases, banks require the last three pay slips to determine the average income. Income can also consist of regular social benefits.

For the self-employed, income can be irregular. When banks assess the creditworthiness of self-employed individuals, they request business analyses, balance sheets and income tax assessments. These documents can be used to determine the ability to service debt.

Schufa check as a condition for a loan

Checking economic circumstances also includes querying Schufa. Almost every bank retrieves current Schufa data when a loan is requested. The borrower must give written consent to this Schufa credit check when making the loan inquiry or application.

A negative Schufa leads to loan rejection at many banks. Nevertheless, a negative Schufa does not necessarily mean consumers cannot get a loan.

Many banks now forgo Schufa and grant loans completely without Schufa. The loan without Schufa is an excellent option for people with a negative Schufa to obtain credit.

Securing loans

For larger loan amounts, banks and financial services companies generally require collateral. Collateral is therefore also a requirement for granting a loan. For example, a long-term construction loan will not be granted without the registration of land charges. Many banks also make the granting of certain securities a condition for smaller personal loans.

Common collateral includes the assignment of life insurance policies. Building savings contracts are also accepted by banks as collateral. In some cases, a guarantee is required as security. If the required collateral cannot be provided, the loan request is often rejected. Collateral is not a direct prerequisite for granting a loan. It merely serves to minimise the bank's risk. If a borrower can no longer pay the installments on their loan, credit institutions can realise the collateral. If no collateral is available, banks often have to write off the money.

The various requirements may seem extensive. In general, however, any consumer can take out a loan. Applicants with a negative Schufa or low income also now have good options to obtain loans.