It has never been so cheap to take out a loan. Interest rates are at an unprecedentedly low level. Retail companies use installment loans to tempt their customers to fulfill their material needs at short notice. Banks offer low-cost acquisition loans. These forms of credit are purely personal loans from individuals and are usually granted without providing collateral.
The personal loan
A personal loan is used when a lender, such as a bank, grants a loan to a borrower without the customer having to provide any special security. Due to his good credit rating, he appears to the creditor to be so trustworthy that the creditor does not secure his claims in the form of real assets or real estate. Only the personal creditworthiness of the applicant is decisive for the granting of a personal loan. He is only liable for his income or – if available – his private wealth. Entrepreneurs usually demonstrate their personal creditworthiness through the annual profit report, from which the solidity of the company can be derived.
Personal Loan Variants
From the definition of the term it follows that the debtor is personally liable for the loan. The best known and most widespread is this type of loan z. B. in the form of disposition and installment loans as well as loans to reschedule or merge various individual loans. Consumers often also take out personal loans when buying a new car or financing other consumer goods such as vacation trips. This also applies if the customer e.g. B. wants to make larger purchases in a furniture store. Each major retail company has its own credit department, where potential borrowers can review financing requests and decide on them without delay, as the company’s credit department is electronically linked directly to a credit institution. There are now many credit institutions that work in this way with companies. The retail company then acts as an intermediary between the customer and the lending bank. The borrower then enters into a direct business relationship with the credit institution. In this way, the retail store receives payment of the total amount directly from the financial institution; the consumer pays the debt to the lender in previously agreed installments. In this way, consumer wishes can usually be financed quickly, discreetly and without problems.
However, there are also restrictions when it comes to issuing personal loans. Depending on the amount of the loan requested, a bank may not want to grant a 100 percent personal loan. Potential borrowers can get into this situation if they apply directly to a bank for a loan that is not required for a specific purchase or other explicitly stated purpose. As a result, a bank takes a high risk if it provides a loan based solely on trust in the customer, without any kind of protection for its claims. For this reason, a bank will generally only grant such a loan if it has had good business relationships with the customer for many years and has no doubt as to its creditworthiness. An example of this would be the customer who has always served his mortgage reliably for his own house and needs a personal loan for personal things shortly before the financing ends. The financial institution would most likely give such a customer a loan commitment without further collateral.
Protection of personal loans
However, sometimes it happens that the creditworthiness of a borrower is not sufficient for the granting of a pure personal loan. The reasons for this mostly lie in the personal life circumstances of the applicant. Then the provision of collateral becomes indispensable. With personal loans, however, this security does not consist in the assignment of land charges and real estate or life insurance to the lender. If such values are used to secure loans, one speaks of property or real loans.
A personal loan can be given in the form of a covered, secured or reinforced personal loan if the debtor’s creditworthiness is not sufficient for a pure personal loan. In the case of a covered personal loan, the borrower needs a guarantor due to his insufficient creditworthiness, who is also used to repay his entire personal assets if the debtor fails to meet his payment obligations or cannot meet them. The conclusion of a guarantee contract is essential here. Even with an increased personal loan, one or more guarantors must contractually undertake to accept any liability. The secured personal loan, in turn, is an option for property owners, because by securing it with a home, the borrower can be granted particularly low interest on the loan.
In summary it can be said that a personal loan is only ever granted to a specific individual who qualifies for it due to its high creditworthiness (creditworthiness). In addition, people who have acquired a special relationship of trust with their bank are also eligible for a personal loan. This includes in particular bank customers who may have deposited high values with their bank or invested in high deposits, such as shares. A personal loan that is secured by one or more persons in the form of a guarantee has a comparably high priority compared to the lender.
However, a surety loan should be carefully considered and carefully weighed against other options so that in the event of a fall, a guarantor may not be deprived of all his savings. And it is not uncommon for life-threatening situations for the guarantor and irreparable hostilities between people who were once very familiar to each other.