In the case of collateral for a loan granted, a distinction must be made between the specialist language of the banks and the colloquial language; in the communication with private customers, credit institutions often use the colloquial vocabulary. Collateral in the narrower sense is possessions of the borrower assigned to a bank, while in a broader sense this also includes the expected salary and the previous behavior in borrowing.
The borrowing without collateral in the sense of the banking language
When using the technical language definition, the loan is the default case without security. The provision of explicit collateral is largely uncommon for commercial loans, but does not apply to lending to consumers. The only two significant exceptions are car loans and real estate loans. In these cases, a loan is granted on condition that the customer assigns the vehicle to be financed to the bank in full until full repayment, or that the mortgage lending is entered in the land register as a mortgage.
Income from labor as a basis for awarding a consumer loan not tied to the specific purpose of use does not alter the fact that it is a loan without collateral in the technical sense, especially since the lender can not influence a possible termination of the employment relationship.
Borrowing without collateral in the colloquial sense
In colloquial terms, lending is considered as a loan without collateral, in which the customary bank criteria for the probability of a duly repaying are not fully met. This is usually the case for fixed-term employment contracts, unless the loan is repaid within the appropriate period. Furthermore, an income is classically only considered to be a sufficient substitute for collateral if it is higher than the exemption amount.
The accounts for some claimants, such as young people still living with their parents, show that even a low income is sufficient for lending because of the large cost of housing; However, if the repayment is not made properly, the bank can not undertake any seizure of wages, since the minimum amount of the seizure waiver is not reduced because of benefits received in kind. If a guarantor is provided, lending is no longer a loan without collateral because the guarantee is considered a classic form of collateral. The most easily accessible loan with no security at traditional financial institutions is the instant loan with no proof of income.
The loan applicant must, of course, provide honest information about the total amount of his income, but the bank can not differentiate it from the relatively secure income from the main employment contract and any additional income from supplementary employment. As an alternative to bank credit, a loan can be taken without security via a private loan mediation website. Many of the lenders registered there pay less attention to existing collateral when making their award decisions than to whether they want to support the specified purpose of the loan.