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Mini, small and short-term loans: what is it and what do I have to consider?
Use in loan agreements between a company as the lender and a consumer as the borrower usually the special provisions of §§ 491ff. BGB on the consumer loan contract. The consumer is to be particularly protected by these regulations, because the lender, for example a credit institute, regularly has a considerable information advantage over the consumer. Therefore, the lender must adhere to certain rules in favor of the consumer. Above all, this includes:
- The loan agreement must be concluded in writing.
- The loan agreement must contain extensive minimum information, such as the net loan amount, the supervisory authority responsible for the lender, the method of repayment, the interest rate, other loan costs and the annual percentage rate of charge.
- The loan agreement can be revoked by the borrower within 14 days (§ 355 BGB).
- In the event of default in payment, the lender can only terminate the contract under difficult conditions.
Exception from consumer protection
However, there are special constellations in which these consumer protection regulations do not apply, although a loan agreement is concluded between the entrepreneur and the consumer. This is the case, for example, when loans under EUR 200 are granted or when a loan - regardless of its amount - has to be repaid within three months and only low costs are agreed. The overall circumstances of the contract are used to assess whether the costs will be low.
Accordingly, providers can be found on the Internet who advertise that they can quickly and easily grant or broker loans for less than 200 euros or for a period of 30 days, for example. These loans are called differently, for example as Mini loan, small loan or - based on the term - as a short-term loan.
What should you watch out for?
When you enter into a contract for such a loan, be valid the special protection provisions of consumer loan law for you Not. A written contract with comprehensive information on the credit conditions, which should enable you to check your borrowing again, is not required. Furthermore, for example, you are not entitled to the right of withdrawal in accordance with Section 355 of the German Civil Code (BGB).
You should also take a close look at the cost and interest rate of the loan before taking advantage of such an offer.
If you have any doubts about the legality of a loan offer, write to BaFin. Your information will help BaFin to uncover any violations of relevant regulatory provisions and to take action against them. Please also read the information on how to lodge a complaint with BaFin.
What documents do I have to provide to my bank when applying for a loan?
Before each loan is granted, a bank must check the customer's creditworthiness (§§ 505a, 505b BGB, see also § 18a KWG). In the case of general consumer loans (overdrafts or overdrafts, installment or consumer loans), information from the customer and from credit agencies (e.g. Schufa) can be used. In the case of real estate loans, the credit institution must thoroughly check the creditworthiness on the basis of necessary, sufficient and appropriate information on income, expenses and other financial and economic circumstances of the customer. Which documents are to be submitted in detail is determined by the credit institutions and depends on the type and amount of the loan. In principle, documents must be submitted that enable the bank to comprehensively assess the customer's economic situation, i.e. his creditworthiness.
In the case of installment loans, the banks often require proof of income (usually copies of the most recent pay slips or tax documents for the self-employed).
The higher the credit, the more important the collateral provided. In the case of real estate financing, a borrower must also submit documents about the financed property so that the bank can get an idea of the value of their collateral (mortgage liens).
When concluding a loan agreement, is the bank allowed to inspect the property serving as security?
Credit institutions are obliged to check the intrinsic value of the collateral. This results from the minimum requirements for risk management derived from Section 25a (1) KWG. The bank can also have the loan object checked by another company. The right of the bank to inspect the property is expressly provided for in some loan agreements. The institutes determine the type and scope of the test.
What collateral can a bank demand for a loan?
There is no legal regulation according to which certain types of collateral can only be required for certain types of credit. The type and scope of the collateral to be provided are based on the liability to be secured: Real estate financing is usually secured by ordering a mortgage (land charge or mortgage); Salary claims secured. In any case, in the case of consumer loans, the collateral to be provided must be explicitly stated in the loan contract (Section 492 (2) BGB in conjunction with Article 247, Section 7 (1) No. 2 EGBGB).
When does collateral have to be released?
Collateral should ensure that the lender gets his money back even if the borrower no longer meets his payment obligations. The regular monthly repayment of a loan can over time mean that the value of the collateral provided when the loan agreement was concluded exceeds the outstanding claim. This is called overcollateralization.
The bank may not retain any amount of collateral; In individual cases, the borrower may be entitled to release.
In the opinion of the courts, however, a release claim only exists if there is a noticeable disproportion between the outstanding claim and the value of the security. This is assumed if the value of the collateral exceeds 150% of the outstanding claim.
Whether there is actually an overcollateralization has to be assessed on a case-by-case basis and primarily an economic question. The problem with this is often that the collateral needs to be assessed. This is the only way to determine whether the bank has too high a level of security. Please note: When valuing the collateral, the proceeds that can be achieved in the event of a forced sale (e.g. in the case of real estate through a foreclosure auction) are to be taken as a basis; these are usually lower than in the case of a sale outside such a procedure. If you have any indications that you have over-insurance, you should seek advice. You can get legal advice from the local consumer advice center or a lawyer.
What guidelines do banks have to observe when granting loans?
Before each loan is granted, a bank must check the customer's creditworthiness (see §§ 505a and 505b BGB, see also § 18a KWG). According to these provisions, a consumer loan contract may only be concluded if there are no significant doubts that the borrower will meet his contractual (payment) obligations. With a real estate loan, repayment must be probable. This is a forecast based on the information to be obtained from the lender. If the bank violates the obligation to check the creditworthiness, this does not lead to the ineffectiveness of the loan agreement. However, the borrowing rate is reduced to a standard market reference rate. The borrower also has the right to terminate the contract without notice. The bank is not entitled to payment of a prepayment penalty (see Section 505d BGB).
Is there an obligation for banks to issue an advisory protocol for consumer loans?
No. A consultation protocol does not have to be drawn up when granting such loans. The banks are only obliged to give the customer a leaflet with the essential information on the contract (e.g. name of the lender, debit and effective interest rate, contract term) before the contract is concluded (for details see Art. 247 § 3 EGBGB).
Can my bank request documents to check my financial situation during the term of the loan?
A bank must also monitor the borrower's economic situation during the term. If the information available is not sufficient for her, she can request further documents; which documents are required in each individual case is determined solely by the credit institutions and depends on the type and amount of the respective loan.
Can my bank charge a non-acceptance fee?
By entering into a loan agreement, the bank undertakes to provide the loan and the customer to accept it. If he does not comply with this obligation - for whatever reason - he violates this obligation. The bank can then demand compensation, the so-called non-acceptance compensation.
In the case of real estate loans, the non-acceptance fee is calculated according to the same standards that apply to the calculation of the prepayment penalty (see also: How do you calculate a prepayment penalty?).
Can I repay my loan prematurely that is not secured by a mortgage?
Liabilities from a consumer loan contract that are not secured by a mortgage can be repaid early at any time, in whole or in part, without the need for separate termination (Section 500 (2) sentence 1 BGB). In such a case, the amount of any early repayment penalty is limited to a maximum of one percent of the amount repaid early (see Section 502 (3) BGB). In some cases, according to Section 502 (2) BGB, the right to early repayment penalty is completely excluded.
These regulations do not apply to real estate loan agreements (Section 500 (2) sentence 2 BGB).
Further information can also be found under the question “Can I cancel my loan?” (Comments on the 5th case group).
What options does a borrower have if he can no longer afford his loan installments in full?
If customers are no longer able to pay the monthly loan installments due to a worsening of their economic situation, they should contact the bank immediately, describe the problems and work together to find a solution. Ignoring this problem or completely “diving in” can only exacerbate the situation and make subsequent negotiations more difficult. If necessary, debt counseling centers can also help.
Can I cancel / repay my loan early?
For the question of whether there is a right of termination, the contractual agreements are primarily decisive. Take a look at the contract documents.
Regardless of this, you can orientate yourself on the following case groups:
1st case group
Loans with a fixed interest rate that is shorter than the loan term, i.e. the fixed interest rate ends before the loan is repaid in full:
You cannot cancel such a loan before the fixed interest period has expired. A termination is possible at the earliest at the end of the fixed interest rate with a notice period of one month (§ 489 Paragraph 1 No. 1, 1st half-sentence BGB). However, this does not apply if you have already made a new agreement on the interest rate with the bank.
2nd case group
Loans with an interest rate fixation of more than ten years:
You can terminate such a long-term loan regardless of the termination options described in the first case group according to Section 489 (1) No. 1 BGB after ten years after the full payment or new interest rate agreement with a notice period of six months (Section 489 Paragraph 1 No. 2 BGB). However, termination can only take place "after ten years". This means that ten years must have elapsed before the declaration of termination can be submitted, after which the notice period of at least six months must be observed.
This also applies to loans that are secured by land charges or mortgages.
3rd case group
Loans with an interest rate fixation of up to ten years that are secured by a land charge or mortgage, such as real estate loans:
As a rule, you cannot terminate such a loan prematurely.
Exception: You have a justified interest in other utilization of the item lent to secure the loan (e.g. in the event of a sale or any other charge), which requires an early termination of the loan agreement.
However, the bank is then entitled to a so-called early repayment penalty in accordance with Section 490 (2) BGB (see also: May my bank demand early repayment penalty?).
4th case group
Loans with variable interest, i.e. no fixed but variable interest rate has been agreed:
You can terminate such a loan at any time by giving three months' notice (Section 489 (2) BGB).
5th case group
Consumer loan contracts within the meaning of § 491 BGB that are not secured by a mortgage may be repaid in full or in part by the borrower at any time (§ 500 BGB). If no specific date is provided for the repayment of the loan, the bank may agree a notice period of up to one month with its customers. If a repayment date and a fixed interest rate have been agreed in the loan agreement, as is usual with installment loans, the lender may charge a prepayment penalty. This is calculated according to § 502 BGB and may not exceed the following amounts:
- 1 percent of the prematurely repaid amount or 0.5 percent of the prematurely repaid amount if there is a period of no more than one year between the early and the agreed repayment,
- the amount of debit interest that the borrower would have paid in the period between the early repayment and the agreed repayment.
Under certain conditions, the calculation of a prepayment penalty is excluded (see Section 502 (2) BGB).
Can I cancel my home loan and repay it early?
In the case of a loan with a variable interest rate, the borrower can give notice of three months' notice; In the case of fixed-rate loans, he cannot, in principle, repay early before the fixed interest period has expired.
A right of termination exists, however, if the customer has an interest in other utilization of the item lent to secure the loan (e.g. in the event of a sale or any other encumbrance) (see Section 490 (2) BGB); In return, the bank is entitled to a prepayment penalty (see also: How do you calculate a prepayment penalty?).
All other circumstances that make an early repayment of the loan possible or necessary on the part of the customer (e.g. inheritance, lottery winnings, unemployment, exploitation of a lower capital market level), but which are not related to the realization of the lending object, do not justify a right of termination within the meaning of Section 490 (2) BGB. This does not preclude a bank from agreeing to early repayment in such a case; However, this is entirely voluntary; the customer has no claim in this respect. The bank will then insist on paying an early repayment fee (see also: What is the early repayment fee?).
Can the bank terminate my loan?
The possibility of termination for loans is generally based on the contractual agreements.
As a rule, the bank has a special right of termination if the customer's economic situation has deteriorated significantly, if he is in default with repaying the loan (usually two to three installments) or if the value of the collateral provided has deteriorated considerably . However, these aspects must be carefully examined on a case-by-case basis.
What is the early repayment fee?
A prepayment penalty is due if a bank accepts the early repayment of a fixed-rate loan secured by real estate, although the borrower has no right of termination. As a rule, it is as high as a prepayment penalty: however, the bank can also demand a higher amount; however, this must not be immoral (§ 138 BGB).
The principles established by case law for calculating the early repayment penalty are not applicable.
If a high early repayment fee is required, replacing it with another bank is unlikely to be worthwhile, but repayment from your own resources (e.g. inheritance or lottery winnings) is certainly worthwhile.
Can my bank charge a prepayment penalty?
If the borrower makes use of his statutory right of termination (§ 490 BGB) in the case of a fixed-rate loan secured by real estate and pays back the loan in deviation from the agreed fixed interest period, the bank is entitled to the so-called prepayment penalty (§ 490 (2) sentence 3 BGB, see also: How do you calculate a prepayment penalty?).
How do you calculate a prepayment penalty?
The Federal Court of Justice has presented in two rulings how the early repayment penalty is to be calculated for fixed-rate loans secured by real estate (rulings of July 1, 1997 - XI ZR 197/96 and XI ZR 267/96):
- The difference between the contractual interest and the reinvestment interest must be determined.
- This difference should be reduced by saved risk costs, since reinvesting in fixed-income securities is less risky than a loan to customers.
- When calculating the interest loss, repayments up to the end of the fixed interest period are to be included.
- The calculated interest losses are to be discounted to the day of the early repayment.
In a further ruling, the Federal Court of Justice recommended that the aforementioned reinvestment rate be calculated using the yields on mortgage Pfandbriefe (ruling of November 30, 2004 - XI ZR 285/03). These are published in the capital market statistics of the Deutsche Bundesbank.
The Federal Court of Justice has not specified a specific rate for the risk costs saved, but has given the institutes a certain amount of leeway. The amount of the early repayment penalty can therefore be disputed in individual cases. The "only correct" prepayment penalty in a specific case can therefore not exist.
In addition to the early repayment penalty, the bank may charge a processing fee. In this regard, the Federal Court of Justice states (judgments of July 1, 1997 XI ZR 197/96 and XI ZR 267/96): "In addition, the bank can demand an appropriate fee for the administrative expenses associated with the early repayment of the loan can be calculated exactly, its determination by way of estimation is permissible. " Only a percentage derivation of the processing fee from the (remaining) loan amount is not considered appropriate.
You can access the decisions of the Federal Court of Justice at www.bundesgerichtshof.de.
I want to sell my property and offer my bank another piece of land as security for the loan. Does she have to accept?
The Federal Court of Justice has ruled that the customer can be entitled to the exchange of the agreed loan collateral without compensation (judgment of February 3, 2004 - XI ZR 398/02).
According to the standards set out in this judgment, a borrower entitled to early loan redemption can request the exchange of existing loan collateral if
the security offered as a substitute covers the bank's risk just as well as the existing one,
the borrower bears the costs of the exchange, such as notary and land registry costs, and
- the bank does not suffer any disadvantages in the administration or utilization of the replacement security.
The bank may not charge the borrower any early repayment penalties as part of such a collateral exchange.
You can access the decision of the Federal Court of Justice at www.bundesgerichtshof.de.
How is the repayment taken into account when calculating the interest?
The credit institutions use different methods of interest settlement. Depending on the contractual agreement, repayments are sometimes offset against the outstanding, interest-bearing residual debt, sometimes precisely to the day, sometimes monthly, quarterly or even only annually. These different approaches are neither mandatory nor expressly prohibited by law and case law. Rather, in accordance with the principle of freedom of contract, the banks and their customers are free to offer, accept or reject a contract on the respective terms. Depending on which variant appears economically expedient to the contracting parties.
In order to ensure a comparability of different loan offers, the Price Indication Ordinance (PAngV) in § 6 expressly stipulates the specification of a so-called "effective annual interest rate" for loans. This "annual percentage rate" must basically take into account all major cost factors in connection with the loan. This also includes the general conditions for calculating interest.
What should you watch out for with a combination of a bullet loan and a repayment replacement product?
Fixed loans in combination with a repayment replacement product is a previously common financing structure that is mainly used for real estate financing. Endowment life insurances or home loan and savings contracts are regularly used as a repayment replacement. With this contract structure, the customer does not make any regular repayments during the term of the loan contract; rather, he only pays interest on the (entire) loan capital during the term. At the same time, he saves the repayment replacement, from the income or maturity of which the loan is ultimately to be repaid in full at the end of the term; the rights and claims from the repayment replacement are assigned to the bank within the framework of the loan agreement.
With this financing structure, however, it should be noted that the loan must be repaid in full at the end of the term even if the performance of the respective repayment replacement product should not be sufficient for this.
In recent times, most insurers have had to reduce the profit sharing in endowment life insurance, in some cases considerably, due to the current situation on the capital market; accordingly, the drainage rates will be lower than predicted a few years ago. Therefore, in many cases, the maturity payments will not be sufficient to repay the loan. So if you have taken out life insurance for the repayment of a loan, you should check whether the maturity benefit is actually sufficient to repay it. In general, the insurers inform their customers of their own accord about the expected maturity benefits according to the current surplus rates. If you have not received this information, please contact your insurer. If you find that the maturity payment will probably not be sufficient to repay the loan, you should not just wait, but talk to your bank in good time about closing the financing gap.
If the fixed loan is repaid by means of a building society loan, problems can arise if the building society loan is not ready for allocation at the time of repayment. In this case it may be necessary to bridge the period until the building society loan is ready for allocation with bridging financing.
Every loan seeker should carefully examine whether this form of financing is suitable in individual cases. With both types of repayment replacement financing, events can occur that lead to deviations from the original financing plan.
Can my bank "sell" the loan to another company?
If the bank "sells" your loan with your consent, this is generally permitted.
According to a ruling by the Federal Court of Justice on February 27, 2007 (Az .: XI ZR 195/05), however, the sale of a loan is effective even without the customer's consent. In the decision, the court made it clear that an assignment of the loan claim is not in conflict with either banking secrecy or the Federal Data Protection Act. A breach of the duty of confidentiality or of data protection regulations could lead to a claim for damages. The effectiveness of the assignment of claims is not affected by this. Neither can the at least tacit agreement of a ban on assignment be derived from banking secrecy, nor can a statutory ban on assignment be inferred from the Federal Data Protection Act or other provisions.
You can access the decision of the Federal Court of Justice at www.bundesgerichtshof.de.
The extensive changes in data protection law that have occurred in the meantime, such as the introduction of the General Data Protection Regulation (GDPR), do not fundamentally restrict the assignability of claims.
Important for the borrower:
The change of creditor has no influence on the agreements made in the loan agreement and does not affect the mutual rights and obligations. The purchaser of the receivable enters into the contract in full and has to fulfill all of the obligations previously incumbent on the bank; the borrower can therefore also refer to the contractual provisions vis-à-vis the borrower and claim his resulting rights. If, for example, the bank has undertaken in the loan agreement to offer follow-up financing at the end of the contract period, this obligation is transferred to the purchaser of the receivables; the latter then has to make a corresponding offer to the borrower. In general, it is advisable to obtain offers from other providers and to compare the conditions.
In addition, the legislature has introduced further protective provisions for the benefit of borrowers within the framework of the so-called Risk Limitation Act. For example, the bank must inform the borrower about the transferability or transferability of the loan to third parties (Art. 247 Paragraph 1 Paragraph 3 EGBGB). The assignment or change of the lender to the borrower must also be reported (Section 496 (2) BGB). In addition, the law expressly provides for a no-fault claim for damages by the customer in the event of unjustified foreclosure (Section 799a ZPO).
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