A loan is basically a transfer of use of money or a thing over a precisely defined period of time. Typical forms of credit, deferrals, loan contracts, repayment purchases and bills of exchange. When it comes to the form of loans, a distinction must be made between a personal and bank loan and depending on the purpose.
When lending through a bank, there is added value. The loan is one of the most common forms of credit. The loan is a transfer of money, the basis of which is the loan contract. In practice, a fixed agreement on repayment is made between the borrower and the lender. The repayment can be made in different ways, whereby the term and loan amount can mostly be chosen freely by the borrower.
Loans for civil servants, pensioners, the self-employed, debt rescheduling or houses can be mentioned as forms of loan. As the individual loan examples show, a distinction must also be made between loans for private individuals and loans for business customers.
A private customer is a person who is in a dependent employment relationship and does not have his own business. With regard to the granting of credit, certain lending price regulations apply to the lending bank, which relate in particular to the reporting of the APR.
The age of majority is a prerequisite for lending in the private customer sector, whereby in addition to the unrestricted business capacity, the creditworthiness of the borrower also plays a decisive role. Most retail loans are acquisition loans. These are subject to a specific purpose (consumer purpose) and in practice are often provided with a term of one to six years. In addition to the actual repayment of the loan amount, the loan repayment also includes an interest payment.
Overview of credit types
With regard to the term, a distinction must be made between short-term, medium-term and long-term loans. Short-term loans have a term of less than six months. In practice, however, medium-term and long-term loans have become more established. Medium-term loans have a term of up to four years, whereas long-term loans have a term of four or more years.
Loan types can not only be broken down by term, but also differentiated in terms of amount, collateral, type of collateral, status, lender, provision and use. With regard to the amount, a distinction must be made between micro, small, medium, million and large loans, which can either be bare, partially covered or fully covered. The collateral can take the form of a personal loan, property loan or real loan.
With regard to the repayment progress or the status of the repayment, a distinction must be made between intact, endangered, non-performing and defaulted loans. Depending on the type, lenders can be banks, suppliers, employers, private individuals, the state or a particular body of jurisprudence. The loan can be provided in the form of cash, goods or a loan. There are countless possibilities with regard to the use, as can be seen in the following part.
Loans for any purpose
A credit for civil servants is a loan that is only granted to civil servants or long-term employees. Loans for civil servants are characterized above all by their low interest rates, since civil servants are quasi “non-cancellable”. Due to the secure and constant income, civil servants are still granted relatively low interest rates even with long terms, even with high loan amounts.
Loans for civil servants are now offered both by the various local banks in the local area and by online banks on the Internet. Most providers use loans for civil servants as freely as possible, so that the loan can not only be used to purchase consumer goods, even existing overdraft facilities can be offset with such a loan, for example.
Most civil servant loans are a modified form of the installment loan, so that the repayment is made in installments. The installment repayment has established itself in particular due to the constant liquidity burden for the borrower, the low total loan costs and the low risk for the bank on the other hand. Official loans can be described as flexible credit products, term, purpose and loan amount can often be designed by the borrower at their own discretion.
Loan to pensioners
A loan for pensioners, on the other hand, is based on the special requirements of pensioners. Loans for pensioners differ from conventional loans primarily in terms of loan options. Pensioners usually have a low income from their pension, so that they do not belong to the preferred target group of many banks. Due to the low income, pensioners often have to expect significantly higher interest rates when borrowing, only through a positive Credit Bureau and restrictions on borrowing are pensioners able to obtain attractive interest rates.
In practice, additional means of securing loans, such as a guarantee or a mortgage, are often required. So that pensioners can also secure an attractive interest rate, the loan amount should always be as low as possible, the same applies to the term, which should be as short as possible. There is also the option for pensioners to freely determine the term, loan amount and thus the repayment as far as possible, the same applies to the use of the loan. For reasons of credit security, loans for pensioners are in practice only offered with an installment repayment.
Special regulations also apply to self-employed persons as borrowers. A credit for the self-employed is subject to a different basis than the credit for pensioners or the credit for civil servants, especially when it comes to credit checks. The loan for the self-employed is a loan that is not granted to a private individual, but to a business customer. Self-employed people who want to take out a loan usually have to disclose their balance sheets and company figures and provide precise information on the salary paid.
Since the self-employed do not have a regular income, banks take a significantly higher risk when it comes to lending, which is also reflected in the amount of the target and effective interest rates. For most banks, however, the self-employed can largely freely determine the use, the amount of the loan and the term, depending on their creditworthiness. On the part of the bank, additional loan collateral is always required when lending to self-employed persons, which can be requested in the event of a loan default to satisfy interests.
Real estate loan
Additional collateral must also be expected for a house loan. The loan for a house or often also called a real estate or construction loan is characterized by special repayment regulations, exceptionally high loan amounts and terms. Loans for a house are usually only granted with extensive loan collateral and are always tied to this one purpose. In addition to a regular income and a secure job, a positive Credit Bureau is just as necessary as other means of securing credit.
Borrowers usually have to lend their own property or grant the bank a mortgage, but this can result in moderate interest rates, even with long terms. When borrowing a house, the borrower can freely structure the term and loan amount at his own discretion. With regard to repayment, several methods have been established here. As with many other forms of credit, the borrower is also given the option of repayment in installments, but annuity repayment is also very popular.
The annuity repayment is characterized by the fact that the borrower pays a constant annuity to the bank – a fixed amount of interest and repayment – if you want to take out the loan for real estate. During the repayment phase, the interest component decreases and the repayment component increases. Since a loan for a house is mostly a very high loan amount and the financial burden is extremely high, a loan default or rescheduling cannot always be avoided.
This is where the loan for debt restructuring comes in. A loan for debt rescheduling should always be used if the joint and several situation leaves no other option open or if another borrower can convince with significantly better interest rates. Using a loan for rescheduling is generally possible with most credit providers today, but rescheduling an existing loan is free of charge. A debt rescheduling generally offers all loans that offer a free use or that are expressly subject to the purpose of the debt rescheduling.
Debt rescheduling only makes sense as a purpose if the effective interest rate is significantly lower than the interest rate of the existing loan. Borrowers should pay more attention to the effective interest rate, especially when comparing loans for debt restructuring.
Apart from the loan for the self-employed, all of the forms of credit mentioned actually require positive Credit Bureau information as a basic condition for borrowing. The Protection Association for General Loan Protection, or Credit Bureau for short, stores all the relevant data that could be important for banks when granting loans. For example, the Credit Bureau provides information on each borrower’s existing loan liabilities, repaid loans and contractual commitments, such as rental contracts.
The Credit Bureau information enables the bank to quickly gain an impression of the borrower’s solvency or payment behavior. Borrowing is still very difficult for people with a negative Credit Bureau, but with a loan without Credit Bureau they can also benefit from a loan with attractive terms.
Regardless of the type of loan, a comparison must be made before the contract is concluded. Numerous financial portals on the Internet today offer borrowers the possibility of quick, free and easy loan comparison of several offers, taking individual comparison criteria into account. By naming the term, loan amount, income, repayment, usage, etc., it is possible for the borrower to quickly compare the best loan offers and permanently win the best loan offer.