The credit agreement – the agreement between borrower and lender
When you apply for a loan, a contractual agreement is reached in case of a positive decision by the lender. The credit agreement or loan agreement is set out in writing and signed by both parties. In the contract all agreements are contained to the credit. This means that the loan amount, the interest, the repayment, possibilities and reasons for cancellation as well as all ancillary loan costs must be included.
A legally valid loan agreement includes a cancellation policy, which must be technically, formally and legally correct. If the revocation contains errors, you are entitled to terminate the contract entirely without any other incidents and you do not have to pay the lender an early repayment penalty. Even if you need the money urgently and think the contract is correct and fair at first glance, you should read it extensively and deal not only with the thickly printed conditions, but also with the fine print.
FAQ about the credit agreement
What is a credit agreement?
A loan agreement is a written agreement between a lender and a borrower. The lender provides the borrower with a certain sum of money at fixed conditions. The borrower receives this sum after successful conclusion of the contract at the specified conditions.
Loan contract signed: When does the money come?
After successful conclusion of the contract, it usually takes only a few days until the money is disbursed.
How a credit agreement comes into being?
A credit contract is concluded by two parties agreeing to the contract by signature. The lender makes an offer to enter into a contract and the borrower accepts that offer by entering into the contract.
What is a credit agreement? The definition
The loan contract is the written agreement between the lender, who provides you with the requested sum, and the borrower, who receives the money at the agreed conditions. This contract ensures you the disbursement of the loan and is for the lender a document that gives him the security for the repayment of the borrowed amount. Therefore, in addition to the loan amount, interest and contractually agreed loan costs, a loan agreement also includes an instruction on what loan costs will be incurred if you default or otherwise fail to meet your obligations as a borrower.
This is important
The credit agreement is a written agreement between the borrower and the lender. On the one hand, it secures the payment of the loan amount and, on the other hand, it offers the lender a security for the repayment of the amount.
If the ancillary costs of the loan are too high, if you pay a fee for the mediation or if the contract contains other incorrect components, you should not sign it. Especially contracts that include the payment of a loan fee to be paid in advance are rip-offs and invalid according to the decision of the Federal Court of Justice (BGH).
Attention!
Do not sign a contract with excessive ancillary credit costs, brokerage fees, or credit fees to be paid in advance.
Contents of the credit agreement
Parties to the loan agreement (lender and borrower) Repayment options and the repayment method with information on the early repayment penalty
Here you can find out what must be included in the credit agreement and what information you must receive and take note of in writing regarding the loan. The content is much more extensive than you think at first glance. Numerous pages of fine print are included in addition to the loan amount, interest rates and repayment method. Sign a loan agreement only if it contains the information that was discussed with you in advance and agreed with the lender.
Tip
Before signing, carefully check the information in the credit agreement. Sign it only if it contains the information that was also agreed in advance. Also check the information on what happens if you default on payments or want to repay the loan early.
Take your time, check the correct presentation of the repayment options, the debit interest and effective interest, as well as the collateral and all information on the disposal of the lender if you default on payments. Also the point early repayment penalty including the interest to be repaid must be included in the contract for your loan and plausibly broken down.
The loan amount including interest
The most important point for you is certainly the presentation of the loan amount. But this item on a loan agreement is just one of the many numbers to check and double-check for accuracy. Furthermore, all interest rates, the debit interest rate and the duration of its commitment, but also the effective interest rate must be presented. The debit interest rate or nominal interest rate indicates how much interest a borrower has to pay for taking out a loan. The effective interest rate is composed of the debits of the debit interest and additional costs incurred for the loan.
The total amount of the loan amount and all ancillary loan costs must be evident as a calculated result in the loan agreement and shows how much you will ultimately repay and what amount will be repaid by you outside of the actual loan amount.
Binding agreement on repayment options, termination and repayment method
This is a very important contractual point for each loan. Do you have flexible repayment options or is the repayment method fixed and unchangeable? If you want to make unscheduled repayments, this point must be integrated into the redemption options. Otherwise, if you change the method of repayment, the bank may demand compensation and require that you repay the interest losses incurred by an unscheduled repayment or early termination before the expiration of the contract on the part of the bank.
The agreed securities
In addition to your credit rating and income, the bank requires additional collateral. These are part of the loan agreement and are clearly listed. If you guarantee for example by an insurance or a material asset for your reliable payment, you may not cancel the current contracts as long as you repay the loan. In this case, the bank is the recipient of the benefit as soon as you fail to comply with the contractual agreements. In the case of tangible assets, such as a car or a house as collateral, the bank becomes the temporary owner and insists on an entry in the documents.
A breakdown of all credit costs and ancillary credit costs
Whether a loan is a rip-off or whether the loan agreement is legal, you can see from the breakdown of loan costs. The debit interest rate, the effective interest rate and the loan amount are fixed components in the credit agreement. Brokerage fees are prohibited since 2014 and may not be demanded by the bank. But some lenders are very creative on this point. If you find amounts that you should repay in addition to the loan and the interest, ask before signing the loan agreement. Arrangement fees are not infrequently referred to as processing fees or loan commissions. There is nothing but rip-off behind this, as these prohibited additional costs are a classic loan fee and thus a requirement prohibited by the Federal Court of Justice (BGH).