The different types of loans

GERMANY. Loans allow people to use borrowed money to purchase goods or services. The lender expects to be repaid with interest after a certain period of time. Depending on your circumstances, it is worth applying for a loan. But the question is still what kind of loan suits you.

In Germany there are countless types of credit, but in this article we want to introduce you to the 3 most common forms of credit in Germany. We recommend you to get more information beyond this article. Deal with independent guides on the subject of loans before taking out a loan.

Installment loan

An installment loan allows you to borrow a fixed amount that you repay over a set period of months or years with a fixed interest rate.

An installment loan is a common type of credit often used to buy a car, house, or other large purchase. Consequently, if you need a larger amount of money at once.

Car loans

As the name suggests, a car loan is used to finance various vehicles, new cars, motorcycles or even mobile homes.

You can apply for the loan at various institutions:

  • The bank
  • At the car dealership
  • Auto banks

If you apply for the credit at the bank, it is issued in the form of an installment loan. In addition, there are car banks, which belong to the car company and the car dealers, whose interest rates and terms differ depending on the provider.

What they should consider with any loan: Loans with longer terms often come with lower monthly payments and also higher interest rates. That is, you should think carefully about whether you are willing to pay lower monthly amounts for a longer period of time or spend more money to pay off the loan faster as a result.

Personal loans

Personal loans are a type of installment loan that you can use for a variety of purposes, z. B. To reschedule debt or pay for larger expenses such as furniture, travel, or cars.

The term and interest rate vary according to the borrower's personal circumstances. Therefore, paying attention to your circumstances, you should choose a suitable loan that you can safely pay off.

Private loans usually also have higher interest rates than other types of credit. This may be due to the fact that personal loans usually do not require collateral as for your car or house.

The advantages and disadvantages of installment loans

  • Monthly repayment of larger amounts of money
  • Can be applied for without much effort
  • Interest rates are usually in the low to medium range
  • Permanent restriction due to monthly installment payments
  • When taking out a loan, an entry is made in Schufa

Overdraft facility

With the overdraft facility, the bank grants its customer more money than is actually available in the account. The exact amount of this overdraft is based on the amount of money you have in your account on a regular basis and your creditworthiness. This is why the overdraft facility is also considered an overdraft facility.

The credit creates flexibility with the available money but the interest rates are usually higher compared to the other types of credit. Therefore, the overdraft should be considered only as a temporary solution, as for the financing of:

  • Higher expenses
    z.B. House repairs, purchase of a new refrigerator
  • Emergency
    z.B. If you unexpectedly need to cover medical expenses while on vacation, but do not have enough money in your account to do so

For all of them, you should be able to repay the loan with its interest within a month, so as not to restrict your daily life too much.

Real estate loan

These are loans that are usually granted by banks for financing a property or for follow-up financing. The property itself serves as collateral for the bank's funding.

Crucial for the security is the entry in the land register, which is also called land charge. Thus, the bank has a lien on the property and can also have it foreclosed in case of overdue payments.

This type of loan is also an annuity loan: A financing solution in which the buyer of a property pays the same installments.

To get the loan approved, several documents are needed, such as:

  • Proof of income
  • Collateral or. specify the property as collateral
  • Building permit, when building a house
  • Identification documents

In case of self-employed people, some more documents are required, as they cannot show a fixed income and the process of applying for the loan also becomes more difficult. Here income tax statements, the financial statements of the last two fiscal years are also required.


A mortgage is a form of installment loan, with which money is borrowed to buy a house. Mortgages are usually repaid over a term of 15 to 30 years with monthly payments.

Some mortgages have fixed interest rates that usually do not change. This means that the standard monthly principal and interest payments do not change either.


Make sure you understand the terms of the loan you are agreeing to. If you do, so you can look for the best loan for your situation and compare the different offers with each other. Also, many banks offer counseling sessions where it might be worth arranging one, are you unsure of your choice.

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