Low-income people tend to find it much harder to get a loan. Banks often only grant low-income loans if the borrowers can provide other collateral.
The dilemma for low earners
Those who earn little because they work part-time or because the job is poorly paid have a hard time surviving in everyday life. As a rule, low-income people have to flip the USD twice before spending it once. The situation becomes really dramatic when a household appliance blesses the time or an unexpected car repair is in the house. Rarely do families with low incomes have the opportunity to build up reserves from this income.
If unexpected purchases are then necessary, it makes sense to apply for a loan. But banks also have their lending guidelines. Loan seekers usually find it difficult to get a low-income loan. Banks prepare a household account as part of the credit check. A loan is only approved if there is sufficient free disposable income.
Those who earn little usually have so little that their income does not even reach a attachable size. This is also a knock-out criterion for lending. A low-income loan is usually only possible if the applicant can provide other collateral, such as a solvent guarantor.
Income is not the only thing that counts when it comes to lending
Banks are not only interested in the amount of income. The income alone does not say whether a loan applicant can afford the monthly installments. Even those who earn well can have a problem with their loan application because there are a number of loans to be serviced and no freely disposable income is left. This is quick when home and car installments are to be paid.
In connection with the credit check, the banks obtain information from Credit Bureau from which they can see the existing obligations, so that there is no point in concealing loans. Therefore, it is quite possible that credit seekers with good earnings will ultimately not be treated differently from consumers who apply for a low-income loan. Often, those earning higher wages have a completely different standard of living and ultimately no more money than people with low incomes.
Take out low-income loans directly from retail stores
The situation in retail is not quite as dramatic. If people with low income want to take out a loan directly on site in the furniture store or in the electronics market, the whole thing is much easier. Many electronics stores such as Media Markt or Saturn and large furniture stores such as Höffner and Porta today offer loans at particularly favorable terms in connection with the purchase of the goods. Occasionally there is zero percent financing where the loan does not incur any costs.
Such loans also get people with little income if their Credit Bureau is flawless. The guidelines for granting commodity loans are not as strict. After all, the goods are available as additional security. When purchasing consumer goods on credit directly in retail stores, customers only own the goods once they have paid for the goods in full. If borrowers do not pay their installments, the goods are secured without further ado.
The cash loan with low income and a guarantee
If it is essential to have a free-use loan, low-income loan applicants must always assume that their loan application is not eligible. Unless they can name a solvent guarantor who is ready to enter into the contract. If a bank can grant the loan to a guarantor, it will also issue a permit.
What guarantors should know
Anyone who signs a guarantee out of sheer courtesy often does not know what he is getting into with this guarantee. The bank reports the guarantee for the loan to Credit Bureau. It then negatively affects the guarantor’s creditworthiness, despite the fact that the installments come from the borrower. The joint and several guarantee is a contingent liability that is considered purely formally as if it actually existed. If a guarantor wants to take out a loan later, the bank may require a guarantor because his income is insufficient.