If customers want to take out a loan from their bank, the amount of the loan amount is usually limited. This means that sometimes loans are only paid in a fixed maximum amount. The actual credit limit of a borrower is based on the individual creditworthiness of the individual. There are several factors that make the bank want to take as little risk as possible. Once the credit limit has been set, the sum is recorded by credit agreement and communicated to the customer. Not infrequently, loans are also completely rejected, so that the customer has no credit limit at all.
Credit line or credit line – terms for borrowers
The credit limit can also be described with just mentioned terminology. Again, this is the maximum amount that the bank can lend to a borrower. The limit to which the bank and the customer have to comply is not publicly communicated. Before a borrower lends a sum of money to his bank, the credit line must be determined. This happens during a personal conversation with his bank, or the financial or bank consultant. Here, the maximum amount is set internally, higher amounts are rejected accordingly.
Aspects of the amount of the credit limit
In general, a borrower must be confronted with the following factors before he can borrow a sum X in the form of a classic loan. Thus, the bank also wants to have the necessary security that it will receive back the full amount plus interest after the appropriate term.
- The customer must open the reason for the loan to his lender. This is a significant factor for the bank in the case of security. While a property means a very high level of security, this is not necessarily the case for a new car. So if the borrower wants to invest in a tangible asset, this can increase the credit limit and increase the chance of a commitment.
- In the next step, the creditworthiness of the customer should be scrutinized. If there are current receivables or if the borrower is noted negatively in the Schufa, the bank assumes a corresponding risk. In the case of bankruptcy, this would be pending behind. Also, one will look at the general payment history and examine the asset collateral that the borrower has to offer.
- Now it can be expected, because the borrower must be able to afford the monthly repayments plus interest. Thus, the income is offset against the monthly expenses and determined how high the monthly burden can be. However, the longer the term of the loan, the lower the monthly installment, the higher the bank can set the credit limit.
The credit line – monthly limit
Also, the establishment of an emergency loan is calculated in a similar way as a conventional loan. Of course, there are no monthly installments, but the income (eg salary, other income, child allowance, parental allowance, etc.) must be able to compensate for the dispensation at any time. Accordingly, one must also speak here of a dispolimit, which the bank individually awards. Also, interest is charged at a dispo, so you should first think well, what a Dispo in your own case should serve at all.