You need a loan? – What you need to watch out for!

Prior to taking out a loan

Check whether the purchase that you wish to finance with the loan is actually necessary at the current point of time.

Prior to taking out a loan, draw up a budget plan, in which regular income is compared against ongoing household expenses.

Do you know about your income and recurring expenses? Draw up a budget to be able to assess what loan you are able to afford. Check whether your regular income is sufficient to be able to repay the loan instalments!

  • Do you have sufficient freely available income to be able to service the loan across the prescribed term?
  • In addition to the loan, do you have other financial obligations that might make it more difficult for you to repay the loan?

Make sure that you don’t lose the overview of your financial obligations!

If you use a broker for the loan, rather than taking out a loan directly with a bank, then additional fees might be charged for the broker.

Interest and costs of loans

Banks are required to provide you, upon request, with a complete draft of the credit agreement that contains the full conditions that apply to the loan. Obtain comparative offers from several banks

Banks’ information obligations to borrowers

Banks are required to provide you with comprehensive information prior to the conclusion of the contract.

Publicity about a loan must contain information about the information features of the loan (for example, the effective annual rate, total exposure).

Borrowers must be provided with a copy of the “Standard European Consumer Credit Information form for loans under the Consumer Loans Act” in a timely manner prior to concluding the loan agreement.

Caution: never agree to act as a guarantor of a loan out of courtesy, by doing so you expose yourself to a high risk.

The loan agreement is also required to contact a large amount of information, such as the total amount of the loan, the interest rate on the loan, the effective interest rate, the term of the loan, the total cost of the loan (the amount of the loan paid out to you as well as the costs), whether you are required to conclude a loan insurance policy etc.

Don’t allow yourself to be pressurised when concluding the loan agreement. Take your time. Never sign blank forms. Only sign contracts that you have filled out fully, have read and understood. If you will to take out a loan online, use comparison portals, and ensure that you use the effective interest rate as the value for the comparison.

Banks are required to carry out checks and make warnings regarding the creditworthiness of the borrower. Provide information that reflects the truth about your financial situation and do not pretend to have a better credit rating by not mentioning other credit obligations that you already have. Banks are required to inform borrowers about the concerns that they have regarding their credit rating (obligation to issue warnings).

Not entitled to a loan – do not try to secure a loan at any cost! The bank checks your creditworthiness and assesses it accordingly. Have you been turned down? Contact the budget planning service of the debt advice service (Schuldnerberatung).

Consumers have the right to withdraw from a loan agreement within a certain period without being required to state the reasons for doing so.

For credit agreements that are secured against a mortgage, intended for the purpose of acquiring property, a period of 2 days generally applies for cancelling the agreement (Mortgage and Immovable Property Credit Act).

For all other loans, a period of 14 days applies. The grace period for exercising your right to cancel the agreement starts on the day that the loan agreement was concluded. However, if the terms of of the Consumer Loans Act and the terms of the contract were only communicated to you at a later date, this grace period only starts to run from that point in time.

As a private person you have the right to withdraw from a loan agreement without stating the reasons for doing so during the grace period. Make sure you observe the respective grace periods: For mortgage-backed loans two days, for other loans 14 days.

A repayment plan shows you what payments are to be made when. From the repayment plan it must be clear which payments are to be made at what intervals, as well as which conditions apply for these payments.

In the case of a loan agreement with a fixed term, the bank is required upon request and free of charge to provide you with a breakdown in the form of a repayment plan at any time during the entire term of the loan agreement.

In the case of a credit agreement, with a variable interest rate, or where the additional costs may be subject to change, the repayment plan must clearly and concisely mention that the information contained in the repayment plan are only valid until the borrowing rate next changes or for the period that the additional costs in accordance with the credit agreement apply.

Draw up a realistic payment plan which corresponds to the financial options that are available to you, and to which you are able to stick. If you are not able to pay an instalment, this will cause you to incur costs (charges for payment reminders, interest for late payments etc.). This will increase the total amount of the loan.

You are only able to get a loan, if the bank has collateral for this loan. This may be: a property, a guarantee, a life insurance policy, insurance for legal costs arising from the loan, etc.

Important documents – store all credit agreements and the accompanying documentation safely!

Following the conclusion of the loan agreement

The statement of account contains a list of the payments that you have made, and the amount that is still outstanding. Your bank sends you an account statement at least once a year.

Banks are required to supply you with a statement of account at latest by the end of March of the following year, which as a minimum contains the total amount of payments you have made by the cut-off point of 31 December of the preceding year, as well as the total of charges and the remaining balance. Ensure that you keep this documentation safe, so that you always have a clear overview about your loan.

Try to reach a solution with your bank. If you require additional support, contact a debt advice service.