In our lives it can happen that we do not currently have the necessary funds, for example to pay for important purchases. So that you can still buy these important goods, banks grant loans without a down payment.
Logically, people who are trying to get a loan have less money available than usual. However, in order to be able to take out a loan, you usually have to make a down payment. For many people, however, this is exactly where the problem lies. A down payment cannot usually be made immediately, since these people currently have little money available.
Can I take out a loan without a down payment?
Of course, loans are granted without having to make a down payment in advance. However, in such a case, it is common for bank or credit institutions to charge a higher interest rate.
This is due to the fact that the bank first provides a large amount of money and secondly has to take a higher risk. After all, the customer has the money from the loan, but the bank has no guarantee that the money will actually be repaid.
As usual, a loan without a down payment is paid in fixed monthly installments. There is no difference in this point to the normal loan with down payment.
What requirements do I need to take out a loan without a down payment?
It is very important that the lender, for example a bank, sees that you can really repay the monthly installments. Banks or credit institutions often ask for wage or salary certificates when concluding such a loan, which prove that you have a secure and regular income. So you check the creditworthiness.
The so-called security transfer offers the possibility of transferring a thing for which one has taken out the loan to the lender.
Example: buying a car
Family A buys a new car. Since the family cannot immediately pay the purchase price of the car, they ask for a loan without a down payment from their house bank. One could now note in the contract that the new car belongs to the bank until the loan has been paid in full.
This means that the bank has the car as an insurance policy if the debtor shouldn’t pay the loan. The bank therefore protects itself for its side.
Credit without deposit despite Credit bureau entry
Another problem when taking out a loan without a down payment could also be possible Credit bureau entries. Credit bureau entries can be created relatively quickly, for example if you do not pay cell phone bills, but also, for example, through unpaid installments of another loan.
These entries usually prevent the signing of a contract for financing or a loan. Banks and credit institutions can refuse in these circumstances. The entries will be deleted after three years, but can still be recorded negatively.
In this case, a loan without Credit bureau can help, which is usually obtained from foreign banks, for example in Luxembourg or Switzerland. However, the amount of the loans granted is very low at these banks. Here, too, the customer must have a fixed and secure income in order to be able to take out a loan with such a bank.
Example: buying a house or building a house
The best way to illustrate the loan without a down payment is to finance a house purchase or house construction.
A young family wants to buy their own home and will soon no longer be a tenant. You can get advice from your bank and get the following example :
The financing sum, which the family closes, amounts to 150,000 USD. They have no equity that they could use for a down payment.
The committed borrowing rate is 1.65 and the annual percentage rate is 1.70 percent. In this example, the family would have to pay this loan monthly for 29 years and 7 months. A installment of € 581.25 would have to be paid in 319 months.
Due to the interest charged by the bank, the payment amount is 185,398.58 USD, so 35,389.58 more must be paid.
5 tips on credit with no down payment
Tip 1 – Include higher interest rates
If you want to finance an urgently needed purchase but cannot pay it as assets or income, you should take out a loan without a down payment. You have to take into account that higher interest rates have to be paid.
The reason for this is that the bank has to provide a larger amount of money and takes an increased risk. You then repay the loan in advance in fixed monthly installments. Before doing this, you should carefully consider the amount of the installment you can repay each month without getting into financial difficulties.
Tip 2 – Prepare a financial plan in advance
It is always good to think about how much credit you should actually need before you borrow. The longer the loan is invested, the more precisely the loan amount should be fixed. It may be advisable to set the loan a little higher, because it can be more difficult to achieve a loan increase afterwards.
The repayment period and the interest should also be calculated beforehand to ensure that the personal economic situation allows it. When choosing the term, think about the lifespan of the financed property. In any case, the life of the property should exceed the loan term.
Tip 3 – Cheap Loan Without Down Payment – How Do I Find It?
If you go to the bank wishing to get a loan without a down payment, you cannot be guaranteed that you will get a loan with the best terms. Nowadays it is not difficult to compare different providers. You can easily carry out a loan comparison online. It is easy to find out from which bank you can get the cheapest loan.
If the loan application is accepted, the money can be paid out to you immediately. Even if you do not have the necessary funds, you can still afford the necessary purchase. To avoid over-indebtedness, you need to keep an eye on your financial situation.
Tip 4 – What are the requirements?
In the first place, of course, it is beneficial if you have a regular income. The lender can recognize that you are able to repay the loan installment on a regular basis. If there are negative entries at Credit bureau, it is also difficult to obtain a loan. You get the loan on much worse terms.
Transfer of ownership:
If you buy a car, for example, you can transfer this to the lender (in this case, it is referred to as security transfer). This means that you only acquire the car as your property after the full installment has been paid back. This provides the lender with certain security.
Tip 5 – What documents are required?
The bank needs some documents to apply for the loan. With its help, the creditworthiness can be determined. The documents usually include:
- Application (completed and signed)
- identity card
- Credit bureau information (which is usually obtained from the bank)
- proof of income
Credit rating: The banks obtain credit information from Credit bureau. Credit bureau Holding AG sends some information to the bank, which can then decide whether the borrower can get a loan or not.
Proof of income: is essential for the bank, this gives the bank a picture of the economic situation of the borrower and allows it to decide whether to grant a loan or not.