Whether car, new furniture, home or to combine existing liabilities: Reasons for a loan can be many. And the banks entice with favorable conditions, low interest rates and attractive offers. But by no means every advertising promise comes true. Plus, many a loan agreement can turn out to be a nasty surprise after the fact. In addition: Especially if the economic conditions are not too good and the house bank rather hesitates in the matter of credit, many consumers make themselves on the Internet on the search or inquire with private credit mediators. But here the concern resonates that it might be a black sheep. And this fear is not entirely unjustified. Because there are indeed rogue providers who want to take advantage of the plight of financially weak customers.
The first and most important tip is therefore:
Never sign a loan agreement without reviewing it carefully!
Get several offers in any case and compare them with each other. If you have decided on a loan offer, take the time to study the loan agreement carefully. As a matter of principle, you should not sign a contract until you have understood all the details. If there are any uncertainties, ask the provider and have the respective points explained to you. When you take out a loan, you are entering into a commitment. And rash decisions can quickly lead to a large mountain of debt that can get you into serious trouble.
Pay attention to these 5 points in a loan agreement
Of course, as a layperson, you won't be able to acquire a solid working knowledge of the credit business in a hurry. But this is not necessary at all. To ensure that you take out a reasonable loan, it is sufficient to pay attention to the crucial key points and to know the typical pitfalls. We have compiled the five most important points that you should have in mind before signing a loan agreement for you below.
Point 1: Can you afford the loan at all??
First of all, you should realistically calculate whether you can pay the monthly loan installments at all. Keep in mind that you will have to fork over a certain portion of your monthly income for the loan in the coming months or even years. If you are already struggling to make ends meet, it will be difficult to service the loan properly. Especially since you have to reckon with the fact that something can happen at any time. Assume you become ill or unemployed, or your fixed costs increase. Can you still pay the loan installment then? Also note that your loan may provide for a higher final installment. When in doubt, choose a slightly lower loan rate rather than a longer loan term. While this means you will have to pay more interest. But at least you can be sure that there will be no problems with repayment. And: Question honestly whether you really need the planned purchase right now. Maybe you can delay the purchase for a while and save up at least part of the purchase price in the meantime.
- By the way: For banks, savings banks and other lenders, loans are a lucrative business. They fail a loan therefore not without reason. After all, this means they miss out on a profit. If a reputable credit institution does not want to grant you a loan, you should therefore take the rejection as a warning sign and reconsider your finances.
Point 2: Are all the contents of the loan agreement correct??
Through the loan agreement, the lender agrees to provide you with the loan amount on the terms agreed upon. In return, you agree to repay the loan as agreed. The contents of a valid credit agreement are governed by the German law of obligations. The rules on this can be found from § 488 of the Civil Code. Basically, the loan agreement must include the following details:
- Contracting parties: Firstly, the name and address of the lender must be listed in the loan agreement. On the other hand, your personal data as a borrower must be included in the contract. If you take out the loan together with another person, their data must also be recorded. But note: All persons signing the loan agreement are liable for ensuring that it is properly fulfilled.
- Loan type and amount: The contract must specify what type of loan is involved. Because depending on the type of loan, different regulations apply with regard to the disbursement, the intended use and the repayment. Also, of course, the loan agreement must state what the loan amount is for.
- Loan term and repayment arrangements: The loan agreement specifies the term over which the loan will run. It is also agreed how many monthly loan installments you will pay and how much each loan installment will be.
- Loan interest: the amount of interest you have to pay for the loan is bindingly agreed in the loan contract. All cost factors that influence the loan are summarized in the APR.
- Loan Collateral: Depending on the type of loan and the loan amount, lenders require different collateral. Whereas a normal installment loan is usually secured by an assignment of wages, for example, a real estate loan is secured by a land charge. Further securities can be for example a capital life insurance, which you assign to the lender, or a guarantor. In the loan agreement, on the one hand, the deposited collateral is recorded. On the other hand, it is noted that you will get the collateral back when you have paid off the loan.
- Termination conditions: The loan agreement will stipulate when and how the loan agreement can be terminated. Pay particular attention to the regulations that apply if you are unable to pay the loan installment.
- Creditworthiness: The lender can and will check your creditworthiness. By an appropriate contract clause you agree to this check. Always keep in mind: no lender will give you a loan if your credit rating is not sufficient. So don't fall for promises that you'll get a loan no matter what. Providers who guarantee you a loan even if you have no income or are already in debt are generally not serious.
- Other agreements: Many more agreements can be made in the loan agreement. These can relate, for example, to unscheduled repayments or additional products. More on this in a moment.
Carefully check the information that is in the loan agreement. Because when you sign the contract, you confirm that all information is correct and you agree with all agreements. Therefore, also take a look at the terms and conditions of your lender. Because they are usually also part of the loan agreement. Also, the loan agreement must be clear and understandable. For it there are contract samples, which are valid European-wide. This is to ensure that you can understand all the credit conditions and costs. If your lender presents you with a long and cumbersome contract, you should therefore become skeptical.
Point 3: What about side agreements and additional costs??
At first glance, a loan offer often seems fair. The interest rates are openly presented, the interest rate is okay and the monthly loan installments are easy to manage. But the devil is usually in the details. For example, there are often side agreements in the loan agreement that provide for unscheduled repayments or the possibility of skipping installments. Initially, there is nothing wrong with such arrangements either. Finally, you may well have more money to spare and want to pay off the loan faster. Or that it gets tight the other way around and you want to pause with the repayment for two or three credit installments. However, you should carefully check what costs such side agreements cause. It is not uncommon for lenders to charge dearly for these extras. Also pay attention to additional products. A classic in this context is a residual debt insurance. This is term life insurance that will step in if you can't pay back the loan. In addition to death, it often covers situations such as unemployment, an accident or incapacity to work due to illness. But the practice shows that the insurance just when the borrower would need it, just does not pay. In addition, insurance policies are often far too expensive. Another negative is that the residual debt insurance is charged as a premium for the entire loan term and is included in the cost of the loan. With this you also pay interest. So think carefully about whether you really need additional insurance. If you want to protect yourself, then take out term life insurance after an insurance comparison rather with an independent provider. And: Don't let any other financial products be sold to you. Leave it exclusively with the credit.
Point 4: Is the loan agreement fully completed?
Do not sign a loan agreement until and unless it is completely filled out. Don't be tempted to allow your lender to add any missing data after the fact. Your signature makes you responsible for the information in the contract! Therefore, you should not gloss over anything or conceal any existing obligations. And: you don't have to sign a loan agreement right away. Do not let yourself be pressured, but take the time to check the contract calmly. A reputable lender will always provide you with a copy of any contract documents and will not pressure you into signing anything.
Point 5: Does the lender give you a cancellation option?
If you change your mind, you can cancel the loan agreement within 14 days. This right of rescission arises from the Civil Code and your lender must properly instruct you about it. You do not have to justify your revocation. It is sufficient to inform your lender by letter, fax or e-mail that you are revoking the credit agreement. But in case of doubt, you must prove that you revoked the contract in time. If the loan has already been disbursed, you must repay it within 30 days of your cancellation notice. However, your lender may charge the contractual interest rate for the time between cancellation and repayment. Therefore, do not take too much time. If you do not repay the loan amount within 30 days, your revocation remains effective, however. However, you will automatically be in default and your lender can then claim late payment damages on the entire loan amount.
But beware, there are two exceptions:
With zero-percent financing, you have no right of rescission. That's because this form of credit is treated like a cash transaction.
If you enter into a purchase agreement that is tied to a credit agreement, you may be able to cancel the agreement. This would be the case, for example, if you buy a car and finance this car via a loan from the car dealer. However, by canceling, you are not just resigning from the loan. Instead, the entire purchase is canceled.