If you want to finance a property or take out a larger loan, you should think in advance about what collateral the bank can offer. In the case of smaller installment loans, the borrower's income is usually sufficient security. However, when it comes to larger sums or very long terms, banks would like to protect themselves against the increased risk. Even self-employed and freelancers have to provide appropriate collateral at most banks due to the increased risk of default. But even with a good credit rating, collateral is generally recommended in order to obtain better credit terms from the bank.
What types of collateral come into question and which ones are rated as particularly good by banks? The loan collateral includes the lien (§ 1204 BGB), the retention of title (§ 449, paragraph 1 BGB), the mortgage (§ 1113 BGB) and the guarantee (§ 765, paragraph 1 BGB). A general distinction is made between physical security and personal security.
In the case of earmarked loans such as the car loan, for example, the financed vehicle serves as security. Real collateral such as a car is transferred to the financing bank. Ie the borrower assigns the vehicle letter to the lender. If payment defaults occur and the loan agreement is violated, the bank has the right to sell the car. In contrast to the lien, the security object does not become the property of the obligee when it is transferred by way of security, but can be used by the borrower during the term.
However, there are also some aspects that make the car comparatively unattractive as security for a bank. For example, the value of a new car drops very quickly, so that after a few years it may be lower than the loan amount.
In contrast, there is collateral that is very popular with banks due to its stable value. For example, credit balances with building societies or the possession of securities are popular loan collateral. Life insurance policies that have a high surrender value are also welcome as collateral.
Probably the most popular real security for banks is real estate. Real estate is comparatively stable in value and can be easily sold by banks in the event of a loan default. In the case of construction or real estate financing, the financed property is accordingly encumbered with a land charge. In contrast to a mortgage, the land charge is not linked to a specific claim - in other words: to a specific loan - and can continue to exist after the last loan installment has been paid. According to the loan agreement, the bank then no longer has access to the property. However, since the entry or deletion of a land charge in the land register incurs costs, it can make sense to maintain the land charge. If there is a new need for financing, the bank can then secure a new loan with the existing land charge without much effort.
In contrast to the physical security, a third party is liable for a guarantee if the borrower can no longer meet his payment obligations. Banks like to use guarantees as security. Since the intrinsic value depends on the financial situation of the protection seller, the surety should have a good credit rating. Guarantees can be used for both commercial and personal loans . For example, a managing director vouches for his company, or a family member for the actual borrower. In the case of an absolute guarantee, the surety has no right to the so-called "defense of advance action", ie he cannot demand that the obligee prove at least one unsuccessful enforcement measure. This means that if the principal debtor defaults on payment, the bank can approach the surety directly with the claim.
In summary, it can be said that when it comes to loan collateral, it is important for banks on the one hand that the value of the collateral does not fluctuate too much within the term of the loan so that the collateral can be sold quickly in the event of a loan default.
If you are not sure which loan security is suitable for you, or whether you need to provide security for your planned loan at all, we will be happy to advise you. Just contact us - we will be happy to answer your questions.