Installment loan

Typical course of an installment loan: consistently high repayment installments

Installment loan ( English installment loan is) in the banking system , the slang term for a loan , which in time precisely defined and on amount consistently high installments repaid is.

General

The compound word "installment credit" consists of the abbreviated form of "repayment rate" and "credit" and is used in this form in everyday language . The law , however, describes the installment loan as a "loan that is to be repaid in installments" ( Section 498 BGB ). This means consumer credit , but investment loans to companies and the self-employed can also be designed as installment loans. “Partial payments” are at least two partial payments , which in their totality reach the amount of the total credit . It is next to the annuity and the bullet loan a repayment forms in Banking , in which the repayment of the entire loan amount at certain times over the repayment period of time a pro rata basis ( " pro rata distributed").

The installment loan is not limited to banking, but occurs in many everyday situations. In the trade in goods , especially mail order , it is the basis of the installment business . In the case of an “open book loan” or “unregulated loan”, the customer can “write to his retailer” and repays the loan in installments or in full. The letter Let the closest connection between the goods and credit. This also applies to the beer mat in the pub , on which the innkeeper notes all of a guest's orders until he pays for them. Leaving cover letters and beer mats are classic supplier credits .

Installment loans are offered by banks under various promotional names such as purchase loan , car loan or small loan (installment loan for amounts between around € 500 and € 50,000). In Austria, the terms counter credit and payment credit are also used.

history

Paris - Grands Magasins Dufayel (1904)

According to Werner Sombart, the installment credit has its origins around 1750 in London ("installment credits"). In 1807, the then oldest furniture store in the USA, Cowperthwait & Sons , introduced the installment loan using a payment plan in New York City . The "Singer Sewing Machine Company" began to sell sewing machines according to the installment system around 1850. The German retail trade followed in 1849 in the installment business with the Hamburg “goods credit house” Alex Friedländer , who sold textiles and later furniture and other furnishings for weekly or monthly rates. The sales organization was completely converted to this method. The installment system then continued to develop as planned in France, where in 1856 the Parisian department store Grands Magasins Dufayel offered the installment loan. It is said to have opened customer accounts for its buyers and issued purchase receipts ("bons d'achat") in the same amount. In January 1917, the “Commercial Investment Trust” received a patent for an “Auto Financing Plan for Wholesalers” and began financing racing cars.

Legal issues

If a consumer is the debtor of an installment loan, the conditions of the consumer loan of §§ 491 ff. BGB apply . The payment schedule is to § 492 para. 3 sentence 2 BGB in conjunction with Art. 247 1 § 6 Abs. Nr. 4 BGB legal obligation component of the loan agreement and will have at least information about repayment pattern, height of the linear installments and their maturity included. Monthly, quarterly or half-yearly payments are the rule as repayments. The repayment rhythm specified in the repayment plan and the amount of the repayment installments can not be unilaterally changed by the borrower , so that unscheduled repayments are not possible. The borrower can object to the loan agreement within 14 days ( Section 495 BGB) and must then repay the loan amount immediately. Furthermore, formal requirements ( written form , indication of the effective interest rate, etc.) are prescribed.

The lender may terminate the loan if the borrower is fully or partially in arrears with two consecutive repayment installments (Section 498 No. 1 BGB) and has not paid the outstanding amount within 14 days of the reminder (Section 498 No. 2 BGB) . The lender's right of termination only applies if the two successive installments reach at least 10% (for a loan term of up to three years) or at least 5% (for a loan term of more than three years) of the loan amount.

A new EU directive applies to loans that are or have been taken out after June 11, 2010 : In future, borrowers can withdraw from the loan agreement at any time and without observing a notice period. Banks may, however, demand a prepayment penalty if the borrower withdraws from his contract early. The amount of the compensation has been precisely determined by the legislator: for loans with a remaining term of more than 12 months, it may amount to a maximum of 1.0 percent; For loans with a remaining term of less than 12 months, no more than 0.5 percent of the remaining balance is possible.

Economic issues

year Remaining debt interest Repayment rate
Installment loan
1 € 100,000 € 5,000 € 20,000 € 25,000
2 € 80,000 € 4,000 € 20,000 € 24,000
3 € 60,000 € 3,000 € 20,000 € 23,000
4th € 40,000 € 2,000 € 20,000 € 22,000
5 € 20,000 € 1,000 € 20,000 € 21,000
to hum € 15,000 € 100,000 € 115,000

The installment loan is the rule in the installment business and the classic form of repayment of the consumer loan . The loan interest provided in the loan agreement is usually unchangeable for the entire term as a fixed interest rate , which optimizes the calculation security for the borrower. The term of the loan is based on the amount of the repayment installments to be raised and the lifespan of the consumer goods financed. As a rule, the repayment installments do not include the additional interest and therefore lead to a reduced annuity . The term is calculated based on the number and amount of repayment installments. The higher the repayment installments and the shorter the repayment cycle, the lower the total interest expense and vice versa. As the repayment progresses, the remaining capital to be interest-bearing decreases and with it the interest expense degressively .

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The higher the individual, consistently high repayment installments, the shorter the credit period and vice versa. The amount of the repayment installments, in turn, is based on the monthly disposable income of a private household or on the cash flow of a company . The repayment installment and the interest expense together form the debt servicing of the installment loan, from which the banks calculate the debt servicing coverage ratio . This indicates whether a borrower is able to repay the installment loan plus interest based on his income / cash flow. A debt service coverage ratio that is just about acceptable for private households is 50% of disposable income (of which all fixed expenses such as rent , insurance premiums and energy costs have already been paid).

A special form is the balloon loan , which is based on a repayment plan , but does not provide for constant repayments. The highest repayment installment is due at the end of the credit period ("balloon"), this residual debt, like the residual value in the case of leasing, corresponds to the expected market value of the vehicle.

completion

Installment loans are mostly standardized banking products for private customers. Installment loans are one of the most common types of credit, range from around 1,000 to 75,000 euros and have a maximum term of 84, sometimes 120 months.

They are usually given as a blank loan , i. H. granted without the provision of collateral . Only an assignment of wages and salaries is typically agreed as security in the contract. If the borrower's creditworthiness is insufficient, a guarantee can also be requested from the bank . In the financing of motor vehicles , it is common a transfer of ownership of motor vehicles make. However, some credit institutions meanwhile forego this transfer of ownership - in the interests of standardized and economic processing - even with such financing.

The repayment is usually made in equal monthly installments. These monthly installments contain the loan repayment and, if applicable, the fees of the bank. The interest on an installment loan is higher than that of mortgage lending , but often lower than that of an overdraft facility . In the past, one-time processing fees of usually 2 to 3.5% of the loan amount were typically required. However, this was subsequently banned by the BGH from October 2014 , so that processing fees are now inadmissible.

Many dealers, insurance agents and independent brokers offer installment loans from banks as credit intermediaries . A residual debt insurance is often taken out with the installment loan contract, which causes additional costs.

Today, the interest rates are predominantly set individually as a creditworthiness-dependent interest rate . Some direct banks offer installment loans cheaper than branch banks . In the meantime, the lending procedure has also been standardized and simplified at many branch banks so that it can be worthwhile to compare the conditions with the direct bank. The effective interest rate must be specified in the loan agreement in order to ensure that the loan costs of the various lenders can be compared more easily.

Installment loans are typically reported to the Schufa .

Rescheduling

If an installment loan with a new installment loan rescheduled , it is called a chain loan agreement .