Bank is the Savior in Financial Distress


Almost everyone with a regular income and a checking account has ever made use of a credit line . Often he is a savior in financial distress, but can quickly become a trap. Not a few customers owe the disposition credit someday in a installment loan, so that the account is not permanently in the minus. This is often caused by the amount of the disbursement credit granted. Not infrequently, account holders can access a loan amount of two or more monthly salaries – often the banks also tolerate an additional overdraft facility. A discretionary loan can therefore be a virtually bottomless foothold for the borrower.

The disadvantages of a disposition credit

 The disadvantages of a disposition credit

The fact that the credit line can sometimes become a trap for borrowers is mainly due to these negative characteristics:

– Some banks give in on discretionary credit without informing the customer.

– For the provision of a credit line , the bank usually has a proven, regular income.

– In addition to the disbursed amount, banks often also allow an overdraft facility.

– There is no fixed interest rate on a repayment credit . It varies according to market interest rates and is very high compared to other forms of credit.

– Interest will also be calculated on a daily basis. The longer the loan has not been paid off, the more interest is due.

– When using the disposition framework by the borrower, the lien specified in the general terms and conditions of the banks applies. If the credit line is not balanced in the long term, the lender has the right to seize the sum of other accounts and deposits of their customers.

– Since no credit agreement is concluded, no monthly installments are due for a discretionary credit, so that the customer has only slightly control over the used total.


But a credit line also has advantages


But a credit line also has advantages

The strengths of a disposition credit are clearly its flexibility and availability, from which not least its name derives. A credit line is ideal for short bridging times. Or to easily pay for more expensive purchases without first applying for an installment loan linked to collateral.

However, the flexibility of the MRP does not end when used. The repayment is also adjusted to the financial situation of the borrower. It determines the repayment installment and maturity itself. Thus, the borrower can avoid excessive monthly burdens and make the rate variable. The customer can adapt the repayment modalities to his possibilities. Under certain circumstances, however, it may make sense to replace a disposition loan with a lower-interest installment loan in the form of debt restructuring.

The purpose of Loan and its Obligations


The term loan most consumers have heard before, especially since this is often used as a synonym for the word credit . But what is a loan, what is the purpose of a loan, and what are the obligations of the borrower and the lender? See for an illustration

Definition: What is a loan?

 Definition: What is a loan?

A loan, which is commonly referred to as credit, is a contract of law. The basis for this contract are the regulations of the Civil Code (BGB). Contracting parties are usually two parties, one being the lender and the other the borrower. The loan agreement essentially contains the agreement that the lender leaves to the borrower for a fixed period of time a certain capital sum, the loan amount. The content of a loan is almost always the interest payment paid by the borrower as compensation for the transfer of capital to the lender.

What commitments do lenders and borrowers make?


As in any contract, there are also obligations under a loan agreement that both parties enter into with the contract. In the case of a loan, the lender first makes the commitment to transfer the agreed loan amount to the borrower or, more generally, to make it available. At the same time, this is the principal obligation of the lender. On the other hand, the principal obligation of the borrower is to pay the agreed interest on the one hand and, of course, also to repay the capital received. Both are done in most cases, but depending on the type of loan, as part of the loan installments, which are paid in most cases on a monthly basis. Loans are almost always linked to an interest rate, although it is not legally established that the lender must charge interest to the borrower.

Is there a difference between credit and loan?

 Is there a difference between credit and loan? As mentioned earlier, the two terms loan and credit are used in most cases as synonyms. However, according to the BGB, there is a distinction, which, however, only affects the strict definition. Thus, strictly speaking, a loan is only a capital loan that is intended for a medium to long-term period . In contrast, the strict definition of the loan is such that the money in this case is lent for a shorter period . In practice, this distinction is hardly or not at all important, because the customer ultimately does not care whether he uses a loan or a loan to finance.

The Entire Term of the Loan


When it comes to financing a consumer good such as a television, a smartphone or even a new kitchen with a bank loan, this form of loan is usually referred to as consumer credit . This is a classic installment loan granted by a lending bank exclusively to private individuals for the free use of the lent loan. A consumer credit is granted with fixed, monthly consistently high rates at an interest rate determined over the entire term of the loan. An exceptional form of consumer credit, however, is the car loan or car loan, which is tied to the purchase of a motor vehicle or motorcycle with regard to the use of the loan amount. Moreover, in this form of consumer credit, the purchased motor vehicle is used as collateral by the lending bank.

Consumer credit and its advantages and disadvantages

Like any other type of credit, consumer credit has both advantages and disadvantages, which are shown below:

Benefits of consumer credit

  • 1.) Planability

    Compared to a credit line, which is often used as a consumer loan, the “real” consumer loan is very well planable with regard to its basic conditions and credit conditions. Upon conclusion of a credit agreement, monthly installment amount, term and interest conditions are agreed in writing between the credit parties. This forms the basis of a very good planability of the loan.


  • 2) Blank loan

    Consumer loans or consumer loans are usually given as so-called blanket loans. That is, the lending bank has no interest in the borrower’s intended use of the loan amount.


  • 3.) Comparability

Thus, consumer loans are basically classic installment loans with fixed credit conditions and credit features such as maturity, debit interest and APR, so they are also comparable with other banks’ credit offers or by using one of the numerous credit calculators on the Internet.

Disadvantages of a consumer loan

  • 1.) SCHUFA score or credit score

    Every loan taken out regularly at a bank is reported to the SCHUFA. Only the acceptance of the loan is reported, but not credit details such as loan amount, term, etc. So if you have multiple consumer – or consumer loans running in parallel, thus risking a deterioration of his credit score. This can mean that you are rejected for further loan requests or at least significantly worse conditions.


  • 2.) terms and minimum loan amounts

Not necessarily a disadvantage, but nevertheless to be considered in some situations: Consumer loans usually have a minimum term of 12 months and a minimum loan amount of € 1,000. Those who need less credit to finance a consumer good and who are able to repay the borrowed loan amount in less than 12 months should look for a loan in the form of a short-term mini loan of a maximum of 6 months.

Conclusion on consumer credit

Conclusion on consumer credit

If a consumer loan is to be used to finance a desired good, it is above all to look more closely at the numerous offers in the market by means of a credit comparison and thus to find the loan offer that best suits your own needs. For a short-term need for a small loan / mini-credit can serve as consumer finance.