Credit – what is a loan? A certain amount of capital is required to finance a trade or property
- Written by: Bessie Perez
- Category: Uncategorized
- Published: February 13, 2020
Not always available in sufficient amount
People need capital, which is not always available in sufficient amounts for a vacation trip, a property or a kitchen. However, a certain amount of capital is required to finance a trade or property. Companies and businesses also need capital, i.e. money, to set up and expand. Banks, savings banks or private individuals give borrowers a certain price, that is the interest, capital. These are typical transactions for banks.
They lend money, i.e. capital, to others. The loan for a property is called a mortgage loan, while an installment purchase for a kitchen or a trip is called a consumer loan or finance purchase. Every bank checks its credit decision before issuing a loan based on legal regulations. Means she checks the creditworthiness, the creditworthiness, her customers. It is examined whether the eligible creditors, after deducting the amounts necessary for a decent standard of living, such as the regular salary income, are able to pay the ongoing loan costs. In addition, the lender checks whether the future borrower in his previous behavior offers a guarantee that he will meet his commitments on time. It is also often clarified what security the borrower can provide.
Labor income, savings, real estate, assignment of receivables or a warehouse for commercial loans are collateral for the lender. For example, information is obtained from Schufa. After these checks, the interest rate on the loan is often measured. A credit check is always in the interests of both sides, the lender and the borrower.
What must a loan agreement contain?
Loans or cash advances must be in writing to protect borrowers. Every credit agreement must contain certain points, here a distinction is made between mortgage, commercial loan and consumer credit. A mortgage is always a long-term loan over 5 or 10 years, while a consumer or installment loan goes for a year or two. A mortgage is entered to secure the mortgage, which the bank uses to secure the loan. The borrower has the advantage of being protected against short-term interest rate fluctuations. The contracts for consumer credit must include the amount, number and maturity of the individual installments, the APR, the collateral, such as the retention of title and the total amount of all payments to be made by the buyer.