Types of loans
Anyone who wants to take out a loan should not only think about how much money they are short of and which loan amount they need, but also what form the loan should take and the scope of the loan or financing. The most important types of loans available in Germany or other European countries are the instalment loan or consumer loan, the overdraft facility, the drawdown loan (also framework loan), the car loan and the mortgage loan. These loans are often also referred to as private loans.
It is important that the borrower always gets a clear overview of the available offers and compares the different types of loans as well as the terms and conditions of the various loans. There are some differences from bank to bank and consumers can save a lot of money by getting an overview and doing a comparison of loans.
Instalment or consumer loans
These two types of loans differ only slightly from each other. After the application is submitted and approved, the entire loan amount is paid out in a single sum and must be repaid by the borrower in fixed monthly instalments over a contractually defined term. The loan agreement also specifies when repayment of the loan begins, when it ends, and whether special repayments or early full repayment of the loan amount are possible. Those looking for a suitable lender should allow themselves enough time when choosing and consider not only offers from local branch banks but also foreign lenders and online or direct banks. For almost all types of loans it is now possible to submit the loan application online without problems. The credit check is usually carried out promptly. In addition, all documents that must be submitted in original form can be provided afterwards via the PostIdent procedure. For the payout of the entire amount, which is typically carried out within a few days, the customer must provide a current account. Monthly repayment instalments are also debited from this account. All mentioned loan types are available for free use. For this reason, private or institutional lenders also do not require proof of purpose. The amount of the monthly instalment is influenced not only by the loan amount and the term, but also by the effective annual interest rate. This includes not only the nominal interest rate but also all costs or fees that arise during the granting of the loan and throughout the term.
Overdraft and drawdown loans
The overdraft facility is not only one of the most popular but also one of the most frequently requested types of loans. It is closely linked to a current account and is set individually for each customer. The credit limit is typically in a range approximately equal to two to three times the regular monthly income. Unlike many other types of loans, the overdraft facility can be used flexibly at any time and repaid just as flexibly. A specific minimum monthly repayment is not required. Although interest rates on an overdraft are generally significantly higher than on an instalment loan, they only have to be paid if the customer actually uses the overdraft on their current account. By repaying quickly, the interest can be significantly reduced. The drawdown loan is a relatively less well-known type of loan. It works similarly to an overdraft but does not have to be taken out with the same bank that holds the current account. A major advantage of a drawdown loan is that interest rates are usually significantly more favourable than on an overdraft and can be in a range comparable to that of an instalment or consumer loan. A thorough comparison of interest rates on the internet is worthwhile here as well. In this context, attention should also be paid to other loan conditions and the question of whether lenders require a certain minimum instalment to be repaid after the drawdown loan has been used. If this is the case, the instalment will only vary slightly.
Car loans
Car loans are among the few types of loans that are explicitly tied to a specific purpose. They may only be used to purchase a new or used car and must not be used for unrelated purposes. While there were initially only a few providers of car loans, their number has increased significantly in recent years. Terms and repayment modalities also differ substantially in some cases. A classic car loan, which is still the most common today, is characterized by a clearly defined term and fixed monthly instalments. A very different situation exists with a car loan with a balloon payment at the end, also called balloon or three-way financing. Here the monthly instalments are very low and the interest rates relatively high. The remaining balance at the end of the term must be repaid in one lump sum. If the loan was taken out through a car dealership, there would also be the option to return the car and thereby settle the residual payment. All customers for whom this option is not suitable should arrange follow-up financing and the taking out of a new car loan in good time. Car loans are offered not only by domestic or foreign banks but also by car dealerships.
Mortgage loans
The dream of owning your own home can usually only be realized if, on the one hand, sufficient equity has been saved up and, on the other hand, a suitable construction or mortgage loan is sought. Depending on whether a condominium is being purchased or a house is being built, the required loan amount will vary. However, it will always be within a range that often involves six-figure euro amounts or even more. For this reason, it is strongly advisable to take time when choosing a suitable construction or mortgage loan. Even slight differences in interest structures or other loan conditions can have significant effects on the prospective borrower and mean that, in the best case, they will have to repay several thousand euros less than would be the case with only a slightly higher interest rate.
Loans without Schufa
Loans without Schufa, which can in principle only be granted abroad, are among the types of loans that are gaining in popularity among the German population. There are various reasons for this. Some people can no longer obtain a German instalment loan due to poor creditworthiness or a negative Schufa entry because banks require greater security; others simply do not want their house bank or Schufa to know about the loan. Those who want to obtain a loan without Schufa do not have to travel abroad and search for a suitable lender there. It is much simpler and more convenient to turn to a German loan broker who specialises in arranging foreign loans for German citizens. This gives the borrower greater security. Unlike many other types of loans, a loan without Schufa can also be disbursed in cash at the post office. This approach allows for the highest degree of personal discretion. Similar conditions apply to the repayment of the entire loan amount. If the customer wishes, it is usually possible to pay the monthly instalments in cash at the post office counter. As with all other types of loans, a loan agreement is drawn up for a loan without Schufa in which the repayment modalities are clearly and unambiguously regulated. If the borrower has the desire and the means to repay the loan early, this can often be done without problems in many cases.