How does a loan work? What types are there?
Definition: what is a loan
A loan is the provision of money or temporary items for use. Typical representatives are, for example, the loan agreement or the installment purchase. The loan is usually charged with interest – that is, the borrower has to pay back more money than he received.
The word credit comes from the Latin verb credere, which means trust or believe. On the one hand, the loan means trust in the willingness to pay something by arrangement and on time. On the other hand, the credit itself is synonymous with money or property, as well as for deferral or credit.
The paradox of a loan is: If you don’t need it, you can get it without any problems ..
The general phrase “have credit with someone”, on the other hand, means that you can trust someone – or “have something good”. In the narrower sense that you are solvent and creditworthy. In a broader sense, this means business honor and is an economic appreciation. This creditworthiness is also mentioned in the Criminal Code (StGB § 187) with regard to defamation, which is likely to jeopardize someone’s credit.
How does a loan work? How much does a loan cost?
When a common loan is taken out, a bank or other lender borrows a certain amount for a set time at an agreed rate. The borrower undertakes to repay the loan on time (usually in monthly installments).
The minimum age for loan agreements is 18 years. The bank also checks whether the applicant is creditworthy and requires collateral to be provided (as a rule, these are the last three salary statements). These collateral can influence the loan terms (amount of the loan, interest rate). In addition to the interest rate (nominal and effective interest rate), the payment (amount and time), the monthly rate and the term, the credit conditions also include other conditions for the repayment of the loan (e.g. special repayments).
What is the difference between a loan and a loan?
In normal parlance, loans and loans are often used synonymously. In principle, both mean the same thing – but there are some important differences or features that we would like to elaborate on below:
- Both – loans and borrowings – refer to the temporary borrowing of money or things.
- The borrower receives ownership of the loan item and can freely use and consume the thing or the money, since they are not to be returned in the same form (which would be nonsensical with money lending anyway).
- The respective contract then regulates the manner of repayment or reimbursement, the costs (fees, interest) and the conditions of the contractual relationship.
- Loans are just a sub-form of credit or a variant of a loan.
- Loans are divided into short-term (up to one year), medium-term (one to four years) and long-term loans (from four years upwards); Long-term loans also include loans, which are usually used for the procurement of larger sums due to the long term (e.g. as mortgage loans for real estate financing)
- Loans are a contractual agreement between a lender and the borrower, which regulates and provides for the use of money or things against correspondingly agreed fees. Loan contracts are given a legal framework by sections 488 et seq. Of the German Civil Code. In principle, loans can also be viewed as a permanent debt relationship.
- In the case of property loans, which are concluded for the loan of justifiable items in accordance with Section 607 of the German Civil Code (BGB), in contrast to renting or leasing, the item can be used up or sold through the transfer of ownership. At the end of the loan relationship, an equivalent item or, if agreed, the monetary value of the item must be returned.
- In the case of money loans, it is customary to pay the sum in installments (tranches, partial appraisals), which are used, for example, in the construction of a house for different construction phases. This also protects the lender against improper use and thus a lack of security for the loan.
Here are the most common types of credit for you:
- Cash loans are granted through a line of credit in an account. Most common forms: overdraft facility (overdraft facility), disposal facility (or on-demand facility)
The most common form of credit. A loan is the contractually agreed transfer of use, usually of money or goods (property loans) or other objects, from a lender to a borrower. A repayment agreement is often made here. Otherwise the repayment is due upon termination of the contract.
Loans to private customers
- not to be confused with personal loans (lender is a private individual)
- usually for employees or private individuals who do not do business
- there are special regulations of consumer protection (price announcement regulation, statement of the effective annual interest) for the better comparability
- Customer must be of legal age
- mostly full merchants
- Rules of consumer protection are not taken into account here
- ranges from loan financing to other financing
Did our free information offer help you?
You can help us a lot with your feedback or a recommendation. Thank you very much!