Customers do not always want to tell the bank what they want to spend the money for. Loans for free use are ideal for this. But this is not recommended in every case. Conditions can improve if, for example, the bank can get security with it.
Anyone taking out a loan with free use can freely determine the intended use. This has advantages and disadvantages for the customer. However, the non-earmarked loan is sometimes a bit tricky. The bank always asks about the purpose of a loan simply because it wants to determine whether it can provide security for the loan. This is useful, for example, with a real estate loan or a car loan. Anyone wishing to receive these loans must prove the intended use. In return, customers can expect good credit terms. In the case of an installment loan without a specific purpose, the borrower can freely decide what he wants to use the money for and does not have to prove the use of the money. Borrowers can use it to finance the chic TV, a new wardrobe or the long-awaited vacation.
Better conditions when specifying the purpose
If borrowers want to get better terms at the end, it makes sense to check whether a dedicated loan would not be a better choice. Customers usually get cheaper interest here, because the bank can use the acquired property as security. It can seize it in the event of payment difficulties and thus minimize the default risk for itself. A good example is the classic car loan. Customers who need a car loan must submit the purchase contract as proof of use. In return, there are cheaper interest rates for vehicle financing.
Even with planned modernization measures, it makes sense to tell the bank what it is used for. Because property owners also benefit from low interest rates as part of a housing or modernization loan. The bank needs an extract from the land register as evidence. Some banks also require an action plan, others want to see the craftsman’s bills. However, there are also banks where this is easier, as the opinions make clear.
What are the benefits of a non-earmarked loan?
A loan that is intended for free use has advantages similar to most consumer loans. With an installment loan, the interest rate is the same over the entire term. This means that the rate is always the same, which makes the financial situation predictable. Borrowers know exactly how much money they have to pay each month and for how long. With a credit for free use, consumers can also fulfill wishes for which their own budget alone is not sufficient without having to save for a long time. Another major advantage is the fact that there is no intended use and therefore there is no evidence of safety. Only the budget has to cover the rate every month. This is the only point that limits the desired loan amount.
What are the disadvantages of a free-use loan?
On the one hand, there are advantages to not specifying a purpose and not having to provide security. That gives a certain freedom. The first disadvantage arises from this. The bank cannot understand what the customer wants to do with the money. The collateral is also missing. This results in a higher risk for the bank. The bank charges higher interest rates to compensate for the higher risk. This is the reason why loans for free use are often a little more expensive. Because the higher interest rates naturally increase the repayment costs.
In individual cases, the interest can be twice as high. In any case, it is worth comparing different providers with one another in order to get the most favorable terms for the credit without a specific purpose. For many customers, simple debt restructuring is the reason for borrowing. You want to merge existing loans and perhaps also the overdraft into one. In this way the financial situation becomes a little clearer again, because installments are only to be paid to one place and no longer to several.
What are the requirements for a loan for free use?
A credit for free use is suitable to meet consumer needs, such as the home theater or the fitted kitchen. It can also help to bridge financial bottlenecks or to offset an overdraft. Most banks can borrow up to USD 50,000 without requiring collateral. If you want to use a loan for free use, you still have to meet the legal requirements for a loan. For example, the borrower must be of legal age and have a residence and bank account in the country. Fixed income and creditworthiness, which have a direct influence on the amount of the loan interest, are just as important. A negative credit entry can cause the whole project to fail because it has an unfavorable effect on lending. It can also raise interest rates.
In addition, of course, the banks still have internal award criteria that are weighted differently. Depending on the weighting, they affect the credit. These include, for example, the marital status, the address, existing loan commitments, profession or any maintenance obligations.
Non-earmarked credit – be sure to compare interest
A loan without proof of use is handled differently by different banks. Here, each bank has its own award criteria, which ultimately influence the rate, the interest payments and the term. Therefore, one thing is always recommended: compare the offers of the different banks. There are various comparison criteria, on which particular attention should be paid to taking a closer look. The most important are effective APR and term.
It is also possible to calculate in advance what the rate will be. There are numerous installment loan calculators on the Internet for this purpose. If you want an individual offer, you should contact the various providers directly.