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Requirements for a loan – How to be recognized creditworthily

  • asic: In order to fundamentally get a loan contract, a place of residence in Germany and the age of majority are mandatory.
  • Creditworthiness: Depending on the loan amount and purpose, the bank requires a certain creditworthiness. This includes, for example, a regular income, good Credit Bureau information and other characteristics.
  • Bank’s discretion: In principle, it can be said that the requirements for each bank can also be different. Ultimately, the loan approval is also a discretionary decision by the bank.

What are the requirements to get a loan!

What are the requirements to get a loan!

Obtaining a loan is not particularly difficult today if the requirements are met. But what are the requirements for borrowing? Below is an overview. Lending is subject to certain conditions to ensure security for the bank. With a loan, long-cherished wishes can be fulfilled – buying a car, buying furniture, a nice trip, for example. However, banks are becoming more and more careful when lending to avoid possible default.

They therefore set out lending requirements that can vary depending on the occupational group, age and income situation.

When are you eligible for credit?

When are you eligible for credit?

Credit capacity is the ability to conclude a credit agreement in a legally effective manner. This is a crucial requirement for any loan. In Germany, private consumers can agree on a loan agreement as soon as they are fully legally competent. This is the case when the adult reaches 18 years of age.

Adult creditworthiness is only at risk if there are serious mental or psychological restrictions. Minors, on the other hand, are generally not able to credit themselves. Many credit institutions also link lending to permanent residence in Germany.

In addition, there are age restrictions “upwards”. From certain age limits – for example 70 or 75 years – often no more loans are granted. There are no legal reasons for this, but for business policy. The risk of death and illness is greater in older people, so the likelihood of credit disruption increases.

How is the credit rating checked?

How is the credit rating checked?

In addition to creditworthiness, creditworthiness or creditworthiness is another important credit requirement. Creditworthiness is when you are economically able and willing to meet the payment obligations associated with the loan on time and in full. Banks use various instruments to check their creditworthiness.

A must is the Credit Bureau information, which is always obtained ( More information at: Credit without Credit Bureau). Negative characteristics in Credit Bureau queries – for example, dunning procedures, account attachments, affidavits or even personal bankruptcy – lead to the loan being rejected.

The creditworthiness is often calculated using scoring methods. This applies in particular to consumer loans. Scoring is a mathematical-statistical procedure that determines the probability of default of a loan on the basis of “accurate” data of the respective prospective customer. If the scoring does not reach a sufficient score, no lending will take place.

Another “classic” assessment tool is the assessment of the ability to serve capital. It is common for larger loans and is often used to supplement scoring.

What does capital serviceability mean as a requirement?

What does capital serviceability mean as a requirement?

The interest and principal payments on the loan are referred to as the lending service. A borrower must be able to provide repayments, which means that he must be able to afford the agreed interest and principal payments. This is usually checked with the help of a household bill.

The regular income (wages, salaries, investment income, rental income) of the borrower’s household is compared with the usual expenses for living, housing and mobility as well as other obligations.

There must be enough left to show the rates. Otherwise there is no adequate serviceability. In the case of many loans, the rate burden can be influenced in the context of the choice of term in such a way that the prerequisite of serviceability is met.

Why is a safe income important?

Why is a safe income important?

A secure regular income significantly improves credit opportunities. This is the reason why employees in solid employment relationships are more likely to get credit than the self-employed. Employment income can be calculated well and reliably. It forms the basis for servicing credit installments. The self-employed also generate income. However, these fluctuate and depend on the respective business situation.

From a bank’s perspective, this increases the credit risk. This also applies to jobs that are not yet sufficiently secure – for example, during probationary periods or training relationships. In all of these cases, banks are often reluctant to lend or make additional demands.

What role do collateral play?

What role do collateral play?

Whether collateral is required for loans depends on the type of loan, but also on personal creditworthiness. Typical installment loans in consumer credit business are usually granted without collateral. Here proof of income is sufficient as “security”. It takes place via corresponding wage and salary statements or bank statements.

In the case of car financing, the vehicle is usually required to be assigned as security. The standard is protection for real estate financing – because of the high loan amounts and long terms. The mortgage serves as a security instrument, less often the mortgage.

Borrowers who have “deficits” in their creditworthiness can often still get their credit by providing collateral. A distinction is made between real and personal security. Real collateral is about pledging or transferring assets as security or assigning claims.

The most important personnel security is the guarantee ( More information at: Loan with guarantors). Alternatively, in the event of a lack of creditworthiness, the co-application can also be requested by a second borrower with good creditworthiness.

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Loan for the unemployed – what’s behind it?

This topic seems to be spreading like wildfire on the Internet. People without work are desperately looking for credit to fill their financial holes. But what exactly is behind the statement “Loan for the unemployed”?

Resourceful and dubious credit intermediaries have set themselves the task of taking advantage of the financial hardship and the desperation of the unemployed and converting it into loan commissions or loan fees.

Problems with the loan application for the unemployed

Problems with the loan application for the unemployed

As a rule, a bank is only granted a loan if the borrower has current income (i.e. has work) or appropriate collateral (such as real estate, motor vehicles, securities, savings, etc.). Current unemployment income no longer applies to the unemployed, so all that remains is the collateral. The question now arises if you already have no income, except probably unemployment benefit or Social welfare, whether you offer your “assets” as security.

Use of collateral without current income

Since it is usually not foreseeable when a job can be taken up again, pledging collateral is a very risky undertaking. If the loan cannot be serviced from current income and the payments fail to materialize, the lenders will next be waiting for the collateral to convert it into face value. So you have not got any further and the wealth that has been laboriously generated over a long period of time seems to be melting away.

Sticking point: loan interest

Sticking point: loan interest

If you want to take out a loan from a bank, the creditworthiness, i.e. the creditworthiness, is first determined. Based on this value, the bank sets an interest rate for granting a loan by calculating the default risk (according to fixed guidelines). The poorer the credit rating, the higher the bank calculates the default risk and the higher the loan interest.

If it is now, as the saying goes, a “loan for the unemployed”, no credit rating can be determined from the income. The borrower (in this case the unemployed) will not receive a loan because he is not creditworthy, so the risk of default is so high that the bank would not grant a loan.

Dubious credit brokers

Dubious credit brokers

With common sense, you have to ask yourself now: “If a bank doesn’t give me a loan, why should someone else give me a loan even though the bank lives on it ?!”

This is exactly where these credit intermediaries start, because the people who apply for a loan do not ask this question. You only see that no loan was granted, but somehow money has to come “ashore”.

It is promised that loans will be given without any evidence or collateral. This is complete nonsense! No reputable company would grant loans without knowing the repayment. Most of the time, the credit intermediaries take lavish fees for this. The “loan for the unemployed” turns out not to be a financial blessing, but rather a cost or debt trap, since in the end only fees are paid without the loan seeker seeing any money.

If someone has been found who lends money (except from the family and friends) without receiving collateral for it, this will usually amount to double-digit loan interest and will most likely already be in the criminal “credit shark” sphere. See also: Credit usury

Loan for the unemployed – we advise against!

Loan for the unemployed - we advise against!

If you are in the predicament of having lost your job, you should concentrate fully on finding a job as soon as possible. We strictly advise against “tying up” any loans or credit intermediaries without a fixed income, since the resulting risk cannot be assessed. One should rather think about where there is still potential for savings, even if it is only so small, to improve the financial situation a little.

If you conclude a loan at the end of the day, you are still without an employment relationship, have tied up your household budget with fees and in the end only more debts remain.

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Urgent cash loan need for a business

In any professional activity, cash is the key to the success of a business. Having good cash flow and optimized management makes it possible to better anticipate variations in activity but also to better anticipate unforeseen events. Financing cash can help restore balance to a business.

The importance of cash in the business

The importance of cash in the business

Cash flow is a real issue, in both small and large businesses, it is important to manage payment times for customers and suppliers well in order to have a working capital requirement that can be covered by available cash. When this WCR is positive, the company must absolutely find a financial resource to fill the need, and this is part of the quality of good business managers. Cash becomes necessary to fill that need, but if that is not enough, on behalf of the Company can be found in the open.

However, having an overdraft professional account can sometimes cost more than cash financing and this situation must remain exceptional. It is indeed important to find a solution to restore the balance within charges and resources. This can effectively go through the use of professional loan financing, a loan repayable over several years. The idea is simple: finance an urgent need for cash to cope with a heavy expense, this then making it possible to put everything back in order.

Can you get an emergency loan for cash?

Can you get an emergency loan for cash?

Obtaining a consumer loan for a business can be done quickly, whether to finance cash or another project. In the context of treasury, it is necessary to quickly have the funds to face an immediate need, it is therefore in the interest of the company not to waste time in the steps of financing, especially when it is necessary to respect a statutory withdrawal period of 14 calendar days from the signing of the loan contract offer. It is therefore important to make every effort to request the right organization and provide all the information requested.

In certain banks and certain establishments, the time taken to take into account the demand, as well as the study time may be lengthened, especially during slack periods such as summer or the end of the year. It is therefore essential to save time and call on financial institutions that can provide an answer in just a few days. In the case of emergency cash financing, it is rather advisable to turn to a specialized broker.

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Loan or financing: what are the differences?

The solution you seek for any economic issue can be borrowed money. There are numerous products on the market in order to cover the different needs of customers.

Borrow or finance

Borrow or finance

However, a question may arise: would it be better to borrow or finance? The truth is that the two options are good choices, but they have different particularities and advantages, so it is necessary to know more in detail how they work.

In both possibilities, there is a contract between the bank and you, but there are distinctions between them.

Thus, it is essential to know the particularities and indications of each one, always considering the purpose of the amount. Thus, you can choose the best choice for your goals and for your pocket.

Thinking about it, in this post, we will talk about the main differences between loans and financing. Check out!

The interest rate is the first issue that must be checked by the customer before taking out any loan.

The higher the interest rate, the more expensive the loan

cash

This is a contract between a financial institution and the individual, in which a certain amount is offered, which must be paid to the bank later, plus interest. That is, the higher the interest rate, the more expensive the loan.

The personal loan, on the other hand, contains an interest rate higher than that of the financing, since there is a greater risk of default.

There is no need to prove the destination and purpose of the loan granted, bringing uncertainty to the bank of its payment. Whereas in financing the interest rates are lower, because it requires a specific purpose and, if there is no payment, the bank has the guarantee of the property.

A personal loan can be used for any purpose

money

This is an element that real estate financing and personal loans differ greatly from each other.

The amount granted by the personal loan can be used for any purpose, that is, the person does not need proof of the purpose of the loan application. As a result, the bureaucracy of credit analysis is lower and interest rates are higher.

In turn, in real estate financing, it is necessary to prove the purpose of the loan, which is why the individual must have in hand all the data about the property when making the financing proposal.

Due to the fact that the credit analysis requires more supporting documents, the process is much more bureaucratic, but the interest rates are lower.

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Loan insurance – is it worth it?

What is loan insurance? How can you ensure your cash loan? How much does loan insurance cost? Is it worth insuring the loan? Is loan insurance compulsory? Cancellation of loan insurance – how to do it? When is it worth insuring a loan?

Are online loans and payday loans safe? Each loan that we decide on involves some risk. Depending on the repayment period, this risk is smaller or larger. Is it worth taking out a loan when taking out a loan?

What is loan insurance?

What is loan insurance?

More and more banks and loan companies require loan insurance. Some of them decide to buy it, they leave it to the client, in the case of others it is forced.

Loan insurance is insurance against its repayment in the event that the borrower, as a result of illness, accident or death, cannot settle the contract. An insured loan is more expensive than an offer without insurance, as the insurance increases the monthly repayments as well as its overall cost.

By insuring a loan, we become a solvent customer for a non-bank institution. Therefore, in the case of customers with low creditworthiness, purchasing insurance may help to improve the terms of the loan.

How can you insure your cash loan?

Cash loan insurance can be credited, but it can also be included in the cost of the loan. In the case of credit, its sum reduces the amount of loan received, but when including insurance in the cost of the loan, it increases their amount. From the client’s point of view, the most advantageous is the installment insurance fee together with the loan repayment.

It happens that the lender allows the client to choose the insurer himself. Then, in addition to the price, it is also worth considering the GTC, i.e. general insurance conditions. It is best that the situations in which the insurance is paid out should be as many as possible.

How much does loan insurance cost?

How much does loan insurance cost?

Probably now you are wondering what the loan insurance is. The insurance amount is part of the non-interest loan costs that increase the APRC. According to the provisions of the Anti-Lich Act, their amount may not exceed 25 percent. the total loan amount and 30% this amount on an annual basis.

The insurance fee is not fixed, it is influenced by several factors, including:

  • loan amount,
  • repayment date,
  • borrower’s age,
  • scope of situations to be secured.

Warning!

The insurance premium can be charged once on the loan amount or it can be spread into monthly installments, thus increasing their amount. The cost of insurance includes the APRC.

Is it worth insuring the loan?

If loan insurance is compulsory, there is no need to think about the pros and cons of such a solution. Otherwise, it is worth considering what the loan insurance gives you and whether it pays to get it.

Is loan insurance compulsory?

Some banks even force you to buy insurance, in case of refusal the decision to grant a loan is negative. Meanwhile, the answer to the question “is insurance mandatory” is – no.

Banks bypass the law and require insurance, while the contract is structured in such a way that taking a loan without insurance is completely unprofitable. The situation is different in the case of loan companies, where the decision to buy insurance is usually voluntary.

Cancellation of loan insurance – how to do it?

Cancellation of loan insurance - how to do it?

If the loan company or bank treats insurance as compulsory, you can opt-out only if you show proof that you already have similar insurance. Even if the borrower takes out insurance, he may withdraw from it during the term of the contract.

Unfortunately, giving up insurance is not always worth it. It may turn out that for the resignation from insurance the borrower will be charged with a contractual penalty, interest will increase in this respect, and in extreme cases, the loan agreement will be terminated. Cancellation is profitable only with early repayment of the loan or withdrawal from the contract – allows you to bypass all penalties.

When is it worth insuring a loan?

In fact, you can ensure any situation that creates a risk of loan repayment. The most common insurance is:

  • death (so that heirs do not have to pay the borrower’s liabilities),
  • job loss (it cannot be the fault of the borrower),
  • inability to work,
  • consequences of accidents.

Subsidized loans for crafts: the 2019/20 novelties.

When it comes to subsidized non-refundable loans, a large portion of these consists of loans to artisans, that is, to all those who carry out crafts, even artistic, as a profession. This form of artisan profession can be carried out in the form of start-ups (see also subsidized loans for start-ups), micro-enterprises, self-employment or within an SME. Also for 2015 there have been concessions to non-refundable loans reserved for artisans. Let’s see what it is.

European, national and regional funding

European, national and regional funding

Let’s start by saying that a non-repayable loan, precisely because it is not tied to total repayment with installments or interest, is used to incentivize a particular sector of the economy and business and helps to entice some categories of subjects (such as young people, women, unemployed, but also those who work in disadvantaged territories) to invest or employ themselves in a specific sector. One of these sectors is certainly craftsmanship.

Craftsmen can choose between subsidized non-refundable loans proposed by calls for proposals from the European Union, the Italian State or the Regions (in addition to the loans of honor for macro areas, such as the South). To take advantage of them, it is therefore necessary to pay close attention to the notices promulgated by the Region of residence or in which the company is based, or to sums made available by entities or individual laws, which also regulate non-repayable loans (such as the n.488 of 1992 or n.240 of 1981, together with several others).

Alternatively, you can check the section of the conventions stipulated by the CNA of your area, checking who they are addressing, the requisites required, and if there is the possibility of requesting also those who have the condition of bad payers.

The news for 2015

The news for 2015

As far as the current year is concerned, it is important to underline that there are many and varied initiatives and laws of this type (just scroll through the list of Region by Region calls). One of these was the fund initiative made available by the 2014 Stability Law of approximately 15 million USD, intended for groupings of artisan businesses or micro-enterprises for expenses relating to digital technologies and sustainable manufacturing.

This loan, which was very successful and required sums of between $ 100 thousand and up to $ 1.4 million, was possible until the middle of October.

In the wake of this announcement, a further selection of subsidized loans at a rate of 0 for a total of 50 million USD will start soon (probably on 13 January 2016), aimed at young people up to 35 years and women who will set up a business, also operating in the craft sector. The loan cannot exceed $ 1.5 million per company (intended for investment programs) and with coverage for up to 8 years and up to 75% of the costs incurred.

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Credit agreement – the basis for granting the loan

Credit agreement – the basis for granting the loan What should the loan agreement look like? What to look for when signing a contract? Credit agreement and possibilities of withdrawal

The basis for granting loans at banks and cooperative savings and credit unions is a loan agreement. Credit agreement in accordance with art. 69 of the Banking Act sets out the rights and obligations of two parties; lenders and borrowers.

Credit agreement – the basis for granting the loan

bank

This article indicates that by the loan agreement the bank undertakes to make available to the borrower for the period of time specified in the agreement the amount of cash intended for a specific purpose.

In turn, the borrower, by signing the contract, undertakes to use the loan amount under the conditions specified in the contract, as well as to reimburse the amount of the loan used together with interest on the specified repayment dates and to pay commission on the loan granted.

Each bank loan agreement, or cash loan agreement, or mortgage agreement should specify the basic issues related to the obligations of the borrower and the lender.

What should the loan agreement look like?

What should the loan agreement look like?

Each bank has its own model loan agreement, which it presents to the customer for review. It is very important for the client to read the loan agreement well, point by point. The signing of a loan agreement should be preceded by familiarizing yourself with its provisions.

Banking law indicates the basic elements of a loan agreement:

  • parties to the contract;
  • loan amount and currency;
  • purpose of lending;
  • loan repayment rules and dates;
  • the interest rate on the loan and the conditions for changing it;
  • method of securing loan repayment;
  • scope of the bank’s rights related to the control of loan use and repayment;
  • dates and method of providing funds to the borrower;
  • the amount of commission, if the contract provides for it;
  • conditions for making changes and terminating the loan agreement.

The loan agreement and its elements are negotiable, which many customers are not aware of. Proper negotiation of the loan price allows it to be significantly reduced.

The parties to the loan agreement must be properly identified. The borrower’s personal data must include his:

  • first name and last name,
  • address,
  • ID number and series,
  • PESEL number.

Credit agreement – what to look for when signing?

Credit agreement - what to look for when signing?

When a loan agreement is signed, it is worth paying attention to its key provisions, including those relating to the borrower’s costs. Among them is the commission, which is charged by the bank before the commitment is given or is credited and added to the subsequent principal and interest installments.

The amount of commission is included in the loan agreement. When determining it, the bank takes into account the loan amount, its purpose, the ratio of the liability to the value of the collateral, as well as the borrower’s creditworthiness.

It is important to look in the credit agreement for information on the interest rate on the loan and when the bank can change it. The interest rate is influenced, among others changing interest rates.

It is important that the contract does not include clauses that are not allowed for this type of obligation. Among them are:

  • an indication of the amounts of minimum fees and commissions, but without their maximum ceiling;
  • collection of double fees, e.g. for early repayment of a loan and preparation of an annex, which is required by the bank;
  • charging commissions for increased risk after establishing a mortgage;
  • fee for sending the borrower’s notice of termination of the loan agreement;
  • presumption of service etc.

If the provisions of the loan agreement are unclear and incomprehensible to the client, he should not sign such a contract.

Illegal clauses in credit agreements may be the reason for its annulment.

Credit agreement and possibilities of withdrawal

Credit agreement and possibilities of withdrawal

It is possible to opt-out of such a contract after signing the loan agreement. Withdrawal from the loan agreement is guaranteed by Polish law. However, not everyone will benefit from it. For example, sometimes it is not possible to withdraw from a mortgage contract if its amount is higher than USD 255 550.

This is due to the fact that the procedure for canceling the loan has been included in the provisions of the Consumer Credit Act. This Act gives the right to terminate the loan agreement if it is a consumer loan of up to USD 255,550, granted to the consumer by the creditor as part of his business activity.

Withdrawal from the loan agreement is possible within 14 days of signing the loan agreement. It is not necessary to state the reasons for such a decision. The bank should accept the withdrawal from the loan agreement. The model withdrawal should be attached to the loan agreement.

If we have any doubts about the loan agreement, it is best not to sign it immediately, but to ask for clarification of its provisions. A good idea may be a loan brokerage agreement when the agent carries out all formalities on behalf of the client, and at the same time provides him with support related to, among others with the signing of the loan agreement.

If necessary, the same intermediary may lead to the cancellation of the loan agreement or withdrawal from the mortgage agreement or other liability.