A new kitchen, a new PC or a car – today, all three purchases are often financed with loans. Private households borrow billions of euros from banks every year.
In August 2017 alone, according to the Good Finance, banks in Germany have granted 1.72 billion euros in the form of consumer loans. Employees usually get a loan quite easily.
But what does the situation look like for the self-employed?
The view is still held that self-employed have no chance to get a loan or financing from the dealer.
- Are the difficulties really that big?
- Are there any ways that self-employed on the way to credit tread to simply overcome hurdles?
First of all, how difficult it is to realize a financing depends on the financing project for the self-employed.
Which specific hurdles must self-employed overcome?
Lending is a business for banks that lives primarily on interest rates. However, banks do not lend their own money. The institutions themselves must refinance a lot of capital. In the end, the profit comes from the difference between refinancing interest and loan interest. Any bank customer who does not repay his loan will reduce the profit.
The more uncertain the income of the borrower, the higher the risk of the bank having to accept a default. This results in special conditions.
The obstacles for self-employed include:
- Higher lending rates
- Higher application cost
- Higher rejection risk
These three aspects are explained by the fact that self-employed people generally have variable incomes and lack the security of workers. The latter can usually rely on the provisions of the Employment Protection Act. In addition, banks have the option of asserting claims for wage seizures pursuant to Section 840 ZPO.
Regarding lending, banks look very carefully at self-employed in terms of documents. It is necessary – while employees only have to produce salary statements for a few months – the tax return of previous years. The situation is particularly difficult for founders whose companies are less than three years old. Furthermore, a business evaluation with other important key figures is often required.
What should be considered before borrowing?
When lending, of course, the interest rate is an important element. For self-employed borrowers, a few other aspects play an important role. This includes, for example, the aspect of special repayments. The latter allow repayment of the loan outside the installment plan.
Interested parties should also think about the subject of residual debt insurance. These policies are offered as a prevention against possible payment difficulties.
At first glance, these policies are criticized by many experts, as their benefits do not always match what borrowers expect. At the same time the insurance increases the overall costs. Another interesting aspect concerns the possibility to repay a loan completely. For this purpose, the BGB stipulates corresponding rules for consumer credit loans.
Conclusion: self-employed must look particularly at the credit
The self-employed still have problems when it comes to financing / credit. However, this does not mean that borrowing is impossible. On the one hand, some banks now offer suitable loans – even without interest-rate-dependent interest. On the other hand, it is quite possible for consumer financing in the low four-digit range to conclude contracts without proof of income.
However, self-employed people have to look very carefully when it comes to finding suitable loans. Especially in terms of conditions can hide in the fine print some interesting details. The residual debt insurance is one of the important aspects. If banks can not find a suitable loan offer, the search for personal loans, which are now being offered online, could be expected.