A new car, your dream kitchen, or that long-awaited honeymoon—there are quite a few things worth spending money on. But with big, lifelong goals comes an even bigger price tag—which can be hard to finance out of pocket. If that’s the case, it might be worth considering taking out a loan. But how do you apply for a loan in Germany? Perhaps you’ve already started the research, or maybe you’re overwhelmed by terms like ‘Schufa credit report,’ ‘creditworthiness,’ or ‘collateral’. No stress. In this guide, we’ll explain how to apply for a loan in Germany, what you need to know about the application process, and how to adjust your loan later on—all in plain English. Ready? Let’s jump right in.
What is a loan and how does it work?
In basic terms, a loan is the sum of money that you borrow from a financial institution—like a bank, for example—that you pay back later with interest. In Germany, there are two main types of loans—an overdraft credit or a consumer credit. So what’s the difference?
If you successfully apply for an overdraft, it simply means that you can continue to overdraw your bank account after you’ve reached €0—up to the limit you agreed upon. You’ll be charged an interest rate on the amount that you’ve overdrawn. For example, with N26 Overdraft, you’d be charged an annual interest rate of 8.9% above the ECB rate. This type of loan could be the right choice if you need a small loan, or simply notice that you’ve gone slightly over your budget at the end of the month.
However, if you’re interested in a larger loan, a consumer credit might be a better fit. Here, your bank lends you a certain amount of money for immediate use, so you can finance your travel plans, further education, or a new car. Since you’re borrowing money from the bank, you’ll have to pay back the full amount plus amortization and interest rates. The interest rate depends on the amount and repayment plan you choose. At N26, for instance, we offer an effective interest rate from 2.99% p.a. and lent terms of six to 60 months.
Banking basics
Banking jargon can be confusing—but it doesn't have to be. Find simple explanations to popular banking terms.
How can I successfully apply for a loan in Germany?
The good news is that you don’t need to hand in thousands of documents at your bank (at least not, if you choose a digital bank). Basically, you must prove sufficient creditworthiness, which will be assessed by your bank before the loan can be granted.
Basic requirements
- Legal age
Need some extra cash for your sweet 16 birthday bash? We’re sorry to report that you’ll have to wait a little longer. To become eligible for a loan, you must be at least 18 years old.
- Place of residence and German bank account
If you want to request a loan from a bank in Germany, you should be registered in Germany and hold a German bank account.
- Regular income
Obtaining a loan is harder if you can’t prove a steady income. This might be the case for students or freelancers.
- Creditworthiness
Your creditworthiness will be checked by your bank. The type of information they request will vary, but it may include your payment history, profession, or any properties you might own. German banks will also request information from Schufa, the German general credit protection agency. Afterwards, the bank will create an internal ranking to assess your creditworthiness.
Additional factors
On top of these basic requirements, banks might request additional loan securities. This usually is the case if you’re considered a risk according to your credit ranking. Loan securities can be obtained through a co-signer—someone who agrees to back you if you default on your loan. Banks can request other securitiessecretaries, such as your life insurance.
Can I adjust the loan amount later on?
Increasing your loan amount
Whether or not you’re able to increase your loan amount really depends on the lender. You can either request an increase directly from your bank, or opt for debt consolidation with a different provider. In case of the latter, your current loan will be consolidated into a new one, which includes the old and new amount in one lump sum. This might be especially interesting if you have several active loans and want to simplify your payments or reduce your interest rate.
Paying off a loan early
Fell into some extra cash and want to put it toward your debt? That’s a great idea! However, whether you’re actually able to pay a loan off early depends on the terms and conditions agreed upon with the lender. Some contracts include fees for early repayment, for example, so you’ll need to review your contract to see how much of the loan you can pay off at once without incurring extra charges.
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As a seasoned financial expert with a deep understanding of banking and lending practices, let's delve into the concepts discussed in the article about applying for a loan in Germany.
Loan Basics: A loan is essentially a sum of money borrowed from a financial institution, such as a bank, with the commitment to repay it later along with interest. In Germany, two primary types of loans are commonly used: overdraft credit and consumer credit.
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Overdraft Credit:
- Allows you to overdraw your bank account beyond a balance of €0, up to an agreed-upon limit.
- Interest is charged on the overdrawn amount.
- Suitable for small loans or instances where you exceed your monthly budget.
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Consumer Credit:
- Involves the bank lending you a specific amount of money for immediate use.
- Commonly used for financing larger expenses like travel, education, or purchasing a car.
- Requires repayment of the full amount along with amortization and interest rates.
Banking Basics: Understanding fundamental banking terms is crucial for navigating the loan application process. The article suggests finding simple explanations to popular banking terms to enhance comprehension.
Loan Application Process in Germany: Successfully applying for a loan in Germany involves meeting certain criteria and demonstrating creditworthiness. Here are the key points:
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Basic Requirements:
- Legal age: Must be at least 18 years old.
- Place of residence and German bank account: Should be registered in Germany and have a German bank account.
- Regular income: Demonstrating a steady income is essential; freelancers or students may face challenges.
- Creditworthiness: Assessed through factors like payment history, profession, and information from Schufa (German credit protection agency).
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Additional Factors:
- Banks may request additional securities if you're considered a credit risk.
- Loan securities can include co-signers or other assets, such as life insurance.
Adjusting the Loan: The article touches upon the possibility of adjusting the loan amount later on. Two scenarios are discussed:
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Increasing Loan Amount:
- Possibility depends on the lender.
- Requesting an increase from the current lender or opting for debt consolidation with a different provider.
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Paying Off a Loan Early:
- Feasibility depends on the terms and conditions of the loan agreement.
- Some contracts may have fees for early repayment.
Conclusion: This comprehensive guide provides insights into the types of loans, the application process in Germany, and considerations for adjusting the loan amount. It aims to demystify banking terminology and empower individuals with the knowledge needed to make informed financial decisions.
