Consumer credit: basics

In short: Consumer credit is a loan that private individuals take out for consumer purposes like furniture, travel, or cars, and is subject to special legal protection rules in Germany. These rules aim to protect consumers from hasty or unfavourable credit decisions.

In more detail: The effective annual interest rate is the most important comparison figure, since it includes all costs of the loan, not just the nominal interest rate.

In detail

• Right of withdrawal: Consumers can withdraw from a concluded loan agreement within 14 days without giving reasons.
• Effective annual interest rate: Besides the nominal interest rate, this figure includes processing fees and other costs, enabling a true comparison between offers.
• Creditworthiness check: Before granting a loan, banks check creditworthiness, often involving credit agencies such as Schufa.
• Early repayment: Borrowers generally have the right to repay the loan early, though the bank can demand an early repayment penalty.
• Overdraft facility: The overdraft on a current account also counts as consumer credit but usually has significantly higher interest than a classic instalment loan.
• Payment protection insurance: This often-offered add-on insurance secures repayment in case of unemployment or death, but is often expensive and not always worthwhile.
• Over-indebtedness risk: Several parallel loans or monthly instalments too high relative to income significantly increase the risk of over-indebtedness (steuerklassen-und-lohnsteuer, schattenwirtschaft-und-schwarzarbeit).