In order to take out an online loan or mini loan, it is necessary to conclude a loan agreement with a recognized credit institution. All the conditions of the loan are specified in it. However, not only in public finance, but also in the case of loans between private individuals, it is advisable to draw up a loan agreement in order to avoid problems. But not every credit contract is valid, especially in the business sector prevail legal conditions that must be met. Each contracting party must receive a copy of the signed credit agreement and the general loan conditions for their own records. This should be kept until the end of the contract period.
What is a credit agreement?
[In principle, there are two parties to a loan – the borrower and the lender. The lender transfers an amount X or even a tangible asset to the other party. If a loan agreement is entered into, the borrower agrees to repay the equivalent or loan amount to the lender. The form in which repayment takes place is spelled out in the loan agreement. There are both loans that are paid in one sum and those that are repaid in installments.
In the loan agreement all legal details of the loan are set out. When such a contract is concluded between the bank and the consumer, many legal requirements prevail that must be met. If the bank violates any of the provisions, the borrower may revoke the contract at any time.
How long does a credit agreement run?
As soon as both parties have signed the credit agreement, it is valid. This only applies if the legal requirements have been met. Important factors that should not be missing from the loan agreement are:
- Term of the contract
- Amount of monthly installments
- Interest rate
- Payment date and repayment dates
The credit agreement is only terminated when the recipient of the money has repaid the full amount plus interest. Theoretically, this point in time is reached at the end of the contractually stipulated term. However, there are exceptional situations, such as in the case of early redemption or defaults on payments, which shorten or lengthen the term.
Is every loan agreement valid?
There are credit agreements that are considered illegal and therefore invalid. Section 138 of the German Civil Code (BGB) specifies the general conditions to which the credit institution and the borrower must adhere. With the strict regulations the legislators try to prevent that one of the two contracting parties receives a large advantage. The following two examples illustrate when a loan agreement is invalid:
1. The lender knows about the financial hardship of the borrower and uses it for his purposes. The lender wants to enrich himself and demands disproportionately high interest rates that are not in proportion to the loan amount.
2. The situation is somewhat more difficult if the bank requires a co-applicant who does not have any assets. If the loan agreement is signed by this person, but there is no income, it is often considered immoral. A financial overcharge is considered to exist if the income is not even enough to cover the interest.
But there are other reasons to invalidate the loan agreement:
- no revocation instructions or legal information are included
- Footnotes and additions were inserted afterwards
- Footnotes or addenda are worded vaguely
- the intention of a contracting party was fraudulent
- The loan was taken out by a minor person
What borrowers should pay attention to in the contract?
If a credit agreement is concluded, the consumer should be well acquainted with it. Hidden fees, for example, are a common issue well known to consumer centers. The following key data should be checked when signing a loan agreement:
- the conditions such as interest rates, possible unscheduled repayments
- Unexplained fees or incidental charges that include appraisal costs
- Contractual fixing of the credit term
- Commitment to a residual debt insurance, yes or no?
- in case of high loan amounts, the fixed interest period should also be taken into consideration.
There are significant differences in the interest rates of individual banks. Comparing multiple lenders is therefore existentially important and easily done over the Internet. This is a fairly quick way to tell how good the terms are and whether the interest rate is reasonable.
This should be in a loan agreement:
1. The contracting parties
Both parties to the contract must be listed in writing with all their personal data. In the case of minors, a legal representative must sign.
2. The sum
The loan amount quantifies that amount or equivalent which is made available to the borrower.
3. The payout
If a loan is taken out with the bank, the contract must specify how the payment is to be made. Depending on the type of contract, the total amount can be paid in individual stages or in one sum. If the object in question is a tangible asset, the time of transfer must be recorded.
4. The term
The maturity is that time given to the borrower to settle his debt. If the term is considered in combination with the total amount and the interest, the monthly due installment can be calculated. For shorter periods, interest costs are low, but monthly expenses are high. Who does not have sufficient, financial liquidity, is better served with a longer term.
5. The interest and the interest rate
The bank incurs costs for the loan, which are redistributed to the borrower. Both the interest rate and the interest due date must be specified in the credit agreement. It must also be stated how long the fixed interest rate will be valid for. interest is part of every loan, with the exception of personal loans, which can also be granted interest-free. When a bank grants a loan, it wants to make a profit. Lending is one of the best earning opportunities of banks. A distinction is made between the debit interest rate and the effective interest rate. The latter is equal to the debit interest rate plus the incidental costs incurred. A processing fee for granting a loan is not allowed by law, so the debit interest rate and interest rate per year almost do not differ.
Some loan offers have a fixed interest rate for a certain period of time. This means that even if the market interest rate changes, there will be no adjustment. If such a fixed interest rate phase is not specified, the bank can flexibly adjust the interest rate.
6. The method of repayment
Most loans are considered as so-called annuity loans. This means that the total amount is repaid in monthly installments until the total amount is paid off. An alternative option is to pay the full amount at the end of the period or leave an outstanding balance. Repayment terms must be spelled out in the loan agreement.
If repayment is in installments, the contract must specify at what intervals the installments must be paid. The form of repayment chosen must also be recorded. The annuity redemption and the installment redemption are possible. Annuity repayment differs in that the same amount is paid on each payment date. With the installment repayment, on the other hand, the amount changes, only the repayment amount is identical. The total installments decrease continuously if the installments are paid regularly.
If the consumer defaults, late fees may apply. The handling of payment defaults must be contractually established. It is advisable to issue a direct debit authorization, because this way it can not happen that the consumer falls into arrears.
7. The collateral
If a large loan amount is needed or the consumer does not have a positive credit rating it is necessary to post collateral. This can be securities, but also the car letter. Due to such a security, the bank acquires the possibility to resort to it in case of payment default. For example, vehicles can be auctioned or sold if the loan amount is not repaid.
The biggest security is the monthly basic income. As a result, some banks require that an existing employment relationship must have been in place for a certain amount of time. Creditworthiness is automatically increased if there is a regular income above the garnishment exemption limit. Income that does not exceed the monthly garnishment allowance cannot be used as collateral by the bank. This income cannot be seized in the event of default and therefore offers no security to the bank.
But even if the credit rating is not perfect, additional collateral can ensure that the desired loan is nevertheless approved. This includes real estate, tangible assets, deposits from the building savings contract or even insurance policies. It is important that these securities are recorded in the loan agreement.
8. The Cancellation
If there is a defined term, neither party needs to terminate the loan agreement. In this case, the contract is over when the entire debt amount has been paid. However, there are a lot of reasons that can lead to an early termination of the contract. These reasons must be stated in the contract. Possible grounds for termination include:
Any interest on arrears must also be included in the contract. If the borrower does not pay his monthly installments, the lender can insist on the payment of interest on arrears. The possibility of unscheduled repayments also need to be written down in the contract. May the customer make unscheduled repayments? May be able to suspend installments?
Notice must always be given in evidenced, written form, such as to the bank's business office. Verbal agreements or contract cancellations are not valid. Also, a certain form must be observed. Thus, both parties must prove that the cancellation actually occurred and was properly served. For this purpose, for example, the termination route by registered mail is suitable. Return receipt serves as proof that notice has been given. It's also possible to cancel by fax at many banks. The exact termination modalities must be taken from the contract.
9. The revocation instructions
Each loan agreement is based on basic legal types. The lender has a duty to inform the borrower of these basics. It should be noted, however, that revocation is only possible in exceptional situations. The term of the cancellation requirement begins on the day the borrower was given the cancellation notice. At the conclusion of the contract, both parties sign that clarification has taken place in this area, the conditions are given to the borrower in writing.
10. The extraordinary termination
Both parties are allowed to terminate the loan agreement for cause if the contractual obligations are not met by the other party. If the borrower can also give a relevant reason, he generally has the option to terminate the credit agreement.
11. The revocation
Within 14 days after the contract has been signed, the borrower can revoke the contract or. withdraw from it. From the moment the information in this regard has been made available to the borrower, the right of withdrawal applies. If the lender does not provide clarification, the consumer can demand this subsequently. There is then a new deadline, this time lasting 30 days.
12. The statute of limitations
Claims that can be made under a private loan agreement are barred after three years. This only applies if no payment has been made, nor has a reminder been issued for non-payment. If no reminder is issued, debt collection is no longer possible after three years due to lack of reminders.
What is the difference between a private and a business loan agreement??
There are significant differences between a private loan agreement between private individuals and a business loan agreement.
The private loan agreement:
- the statute of limitations expires after 3 years
- termination is possible at any time without prepayment penalty
- Personal loans are not reported to Schufa
- no legal regulations for the contract design
- Credit amount is not earmarked
- Creditworthiness in the private environment is rarely checked
- Higher loan amounts are often not possible
- usually no collateral required
- private interest-free loans are possible
The business credit contract:
- Statute of limitations is 3 years, with sent reminder 10 years
- If interest rates are fixed for a fixed period, an early repayment penalty becomes due
- hardly credit chances with negative Schufa
- business chalk contracts are protected by law
- high loan sums are almost always earmarked for a specific purpose
- Credit rating must be positive
- Good credit rating allows for very high loan amounts
- Collateral may be required by the bank
- interest free loans do not give banks
Why is a credit contract necessary at all?
The credit agreement is a protection and security aspect of borrowed money. Both rights, and obligations, of both parties are spelled out in the contract and can be called in at any time. It is also advisable to conclude a private credit agreement for personal loans. There are some samples online, which only need to be downloaded.
However, the help of an ombudsman or consumer protection is only available for credit agreements that have been concluded publicly. Private contracts remain unaffected.
How do I recognize a dubious credit offer?
There are numerous, dubious credit providers, which can be quickly unmasked. 100.000 Euro instant loan with low interest rate without Schufaeintrag? Such offers sound perfect, but are smoke and mirrors. Every serious lender needs the security that the repayment will be on time. A credit check is therefore not only a nuisance, but should also protect consumers from the debt trap. The only banks that do not perform a Schufacheck are foreign banks. But here, too, security is necessary, for example through an above-average salary.
Checklist to determine if rip-off:
There are a few ways even inexperienced consumers can figure out if they've fallen for a loan shark or if a loan offer is legitimate. Consumers had better be wary of these points:
– The lender requires a brokerage fee up front before the loan is approved. With such offers in all rule never the switching of a credit takes place, here earns only the mediator at the fees.
– An economic advisory contract is offered in addition to the loan agreement, or even exclusively.
– The credit provider requires at the same time the conclusion of a building savings contract or insurance. Such offers are a rip-off.
– Borrowers should be able to contact the lender at any time without calling an overpriced hotline.
There are numerous fraudsters who want to enrich themselves at the financially weak ones. There loans for Hartz 4 recipients are promised as well as housewife loans without Schufa. About 1/3 of all credit offers are estimated to be frivolous. As soon as an express loan is sought, which does not require a Schufa query, nor collateral, dubious offers are usually made.
Every consumer is therefore advised to read the loan terms carefully and not to fall for bait offers. A bank does not take any risk, it wants to prevent a payment default. Thus, a Hartz-4 recipient does not get a loan with a large loan amount, because repayment is not possible even within 120 months.
Conclusion on the loan agreement:
The credit agreement protects consumers and lenders in a serious way. Lending without a contract is not advisable. Especially among friends, taking out a loan always carries risks, as friendships can suffer from defaults and other problems. Before taking out a loan, a comparison must always be made to find the best offer.