Loan conditions. They are determined by monthly income, expenses and other payment obligations. ©Getty Images
It is often only clear at first glance why one person gets the loan and the other doesn’t.
Even in Corona times, people in Germany buy cars, furniture, kitchen equipment, large household appliances and expensive technology on credit. This is demonstrated by the banking association’s current consumer credit index. According to managing director Jens Loa, demand for loans is stable at the 2020 level.
But an installment loan is not a surefire success. Banks often reject loan applications without explanation, even if the customer can repay the loan on their own. Or institutions charge a much higher interest rate than advertised.
The financial test shows which criteria are important for loans.
How does the bank determine whether to give me a loan?
The basic requirement for any loan approval is that the borrower is of legal age and has full legal and business capacity. He needs a fixed monthly income, i.e. salary or pension. The bank needs to see that the monthly income is greater than the expenses. Only then will she assume you can meet the monthly payment.
Some banks do not use real values for expenses, but rather empirical values. We noticed this when we clicked through the online loan application pages of over 20 banks. Banks often do not ask about individual customer expenses, but only how many people belong to a household and how many people contribute to the household’s income. From this, they calculate a fixed rate.
Some banks, such as DKB and SKG Bank, offer an instant loan, for which they directly analyze current account transactions – of course, only if the borrower agrees. Otherwise, only the company bank will be able to operate if its own customers apply for a loan.
The legal basis for this account view is the European Payment Services Directive (PSD2).
Tip: If your online loan application is rejected but you think you can repay the loan, speak to a customer advisor and explain your income and expenses. For example, are you expecting a settlement, a payment from a savings plan or a life insurance policy?
In any case, stay away from “Schufa-free” loans for which the lender does not make a Schufa credit bureau inquiry. Providers of these loans know that they usually only come from customers who have unsuccessfully applied for a loan elsewhere. Such a contract often has significantly higher interest rates because these banks have a higher risk of default due to their clientele. They make up for this with higher interest rates.
Is Schufa information the only acceptance criteria?
The Schufa score is a numerical value in percentage and tells the bank how likely a customer is to repay their loan adequately. It does not describe the person’s payment behavior, but rather that of a group to which they belong.
The Schufa score is just one of several criteria. It’s true that loan approval looks bad if your score drops below a certain amount.
Tip: If you are refused a loan based on your Schufa data, please check the data stored there. If there is incorrect information, ask Schufa to correct it immediately. She is obliged to do this. How this works and how Schufa calculates your solvency is described in detail in our special Credit agencies.
What distinguishes solvency from creditworthiness?
The two terms are generally used interchangeably to describe the likelihood that a debtor will be able or willing to meet future payment obligations on time and in full. The difference between the two terms is in the details.
Credit capacity. Here the bank checks whether the customer is really able to pay the monthly installment. This depends on the desired value and the deadline. Checks whether revenues and expenses are in an economically acceptable ratio and whether loans have already been serviced in accordance with the contract or whether there has been default.
Credit capacity. Here, the bank checks to what extent the person can afford the installment – how much income they still have freely available after deducting their living expenses. For example, if it is 800 euros, it is easier to pay a monthly fee of 300 euros than 700 euros. For this reason, the credit rating of the same customer is usually better with an installment of 300 euros than with an installment of 700 euros. This could mean that the customer is offered a lower interest rate for the loan with an installment of 300 euros than for the loan with an installment of 700 euros.
For this reason, banks often state conditions with the note “of…percent”. They make the interest rate dependent on the creditworthiness of the customer.
Tip: With credit-dependent interest rates, you should pay attention to the interest rate stated in your offer. It is often significantly larger than advertised. You are on the safe side with a bank that has conditions independent of credit quality. Those who have credit obtain the advertising conditions there.
Compare multiple offers, even beyond your local bank. Our Installment loan comparison contains the current monthly effective interest rates for installment loans of 5,000, 10,000 and 20,000 euros for various terms.
Can I get the loan amount I want?
No, this depends on your monthly income, expenses and other payment obligations. The maximum possible amount is often up to 100,000 euros. This applies to loans for which no special security is required. In some banks the maximum loan amount is 50,000 euros.
Since May 2018, banks can only grant loans if there is no significant doubt that the borrower can repay the loan. “The protection desired by the legislator also has disadvantages,” says Susanne Götz from the Bavarian Consumer Center. “To avoid the risk of an incorrect assessment, banks sometimes prematurely reject elderly people, self-employed people or borrowers with temporary employment contracts.”
Tip: With our Fee Calculator You can see your monthly payment amount depending on the loan you want and the term.
If you need a loan for structural work on your home, you should check whether a real estate loan or a financing measure are alternatives.
Is the bank right to advise me to take out residual debt insurance?
No, in most cases not. Banks and dealers often offer credit insurance with an installment loan – such as residual debt or installment insurance.
It is intended to help when bank customers are no longer able to pay their monthly installments due to prolonged illness, unemployment or even death. Risks can be insured separately or in combination.
But it’s not as easy as it seems. Credit protection is very expensive. This is often not noticeable because insurance costs do not have to be included in the effective annual interest rate and customers cannot compare loan costs. Furthermore, insurance conditions often contain surprising restrictions, so that the insurance does not cover the rate despite unemployment or inability to work.
Tip: For these reasons, we recommend a Residual debt insurance absent. You can find details about this in our current test of 25 banks.