As the saying goes, loans are not granted without collateral. In the technical language of banks, taking out a loan without such is the rule and not the exception, especially for personal loans. The reason is that a regular and, as far as possible, garnishable income is not a security in the proper sense, but rather a substitute for bank security to be provided.
On the other hand, real pledges are real pledges, the land charge for real estate loans and the transfer of ownership in the financing of motor vehicles. Since financial institutions are usually based exclusively on the income from work when granting a consumer loan, this formally constitutes a loan without collateral. A positive Credit Bureau information makes lending easier, but it does not represent actual security the past has properly met all financial obligations. The score is only meaningful to a limited extent, since the credit protection system does not record any information about the income situation of consumers.
The granting of bank loans without security
In order for a bank to be able to rely on the loan installments being paid by the customer’s labor income, this must be at least high enough that the borrower has enough money to support themselves and the loan installment. The likelihood of lending can be increased by the customer choosing a long term with low income and having to pay a correspondingly low monthly rate. For the granting of loans, many financial institutions also require the customer to earn regular earnings above the garnishment exemption limit so that they can initiate a garnishment of wages for defaulting borrowers. The calculation of incidental earnings in the household account is not uniformly regulated.
If loan seekers get their income from different sources, they are looking for a bank whose income-expenditure account includes all income. For borrowers with income from multiple sources, it is also advisable to take out an instant loan paid out without proof of salary, since this does not allow a discrepancy between your own and the income calculation accepted by the financial institution. Of course, the obligation to honestly state your income remains. If the borrower himself receives only a small wage and is supported by his partner, he can add a reasonable amount to his total income for maintenance. On the other hand, a clear misstatement regarding the income entitles the bank to immediately terminate the credit contract if it accidentally discovers it.
This applies even if all loan installments are paid on time. The overdraft facility is a simple variant of a classic loan without collateral. Most banks calculate the amount of the credit limit on the basis of the incoming payments that they can easily understand on the checking account. However, you cannot differentiate between whether the employer only transfers the salary or in some cases also amounts for reimbursement of costs. Some consumer banks offer a credit line that is independent of the account, but they do not require any receipts for the basic amount. This also applies to many credit card companies.
Loans without security are particularly easily available for individual groups
The easiest way for students to obtain a loan without collateral is that KfW Bank pays them the monthly installments applied for without any further requirements. It assumes that students can easily reimburse the amounts received after completing their training, as they will then earn a good income. Comparable rules apply to vocational training at a technical school and to attending a master school. If urgent, recipients of Hartz IV benefits receive a loan without collateral from the job center. However, the prerequisite is that they need the money for household items that are recognized as urgent.
Alternatives to bank loans without collateral
Although the agreement of a retention of title is common, the agreement of payment in installments in retail can be described as a loan without collateral, since the customer is not only allowed to use the financed goods, but can also resell or give them away without restriction. The question of salary or even employment status is largely unusual in the mail order business and, with a few exceptions, only occurs when orders reach an unusually high amount. Loan seekers receive a loan without collateral even with a low or irregular income via a platform for lending by private individuals. For the award decisions of numerous members registered there, the specified purpose of use is decisive.
They only draw a loan request if they consider the planned use of funds to be worthy of support. A potentially poor credit rating, on the other hand, is not a reason for a large number of private lenders not to refrain from signing a loan request. Instead, they are signing a request for a loan without collateral, like a high regular income, since the applicants can hardly borrow money from conventional loan banks.