Small loan without Credit Bureau – is that possible?

Small loans, i.e. installment loans with a low financing amount, are a particularly popular form of financing in Germany. Whether to finance your vacation or to buy expensive furnishings – a small loan is often enough to finance necessary or desired purchases. However, a small amount of the loan amount does not mean that the loans are granted without obtaining Credit Bureau information. At least at most German banks, small loans can only be granted if there are no negative Credit Bureau entries.

What is a small loan?

What is a small loan?

A small loan is a loan whose maximum amount does not exceed USD 10,000. Small loans are granted to consumers and are used to finance consumer goods – i.e. goods for private use and use such as furnishings, holidays or electronic devices.

However, no uniform guidelines apply in banking to define the concept of small loans. This means that at some banks the maximum amount that can be granted as a small loan can be significantly less than USD 10,000. In addition, the term “small loan” is not used by all credit institutions. At some banks, installment loans with a rather low level of financing are referred to as “instant loans” or “mini loans”.

What small loans – regardless of their name and the exact amount of funding – have in common is their repayability in installments and a simplified credit check when they are issued. Unlike other loans, small loans also have no fixed purpose and do not require the existence of loan collateral.

That is why German banks do not grant small loans in the event of a negative Credit Bureau entry

That is why German banks do not grant small loans in the event of a negative Credit Bureau entry

In order to answer a borrower’s loan application positively, the bank carries out a credit check before the final loan approval. When it comes to a small loan, the creditworthiness check usually extends to obtaining Credit Bureau information. In addition, some banks are also requesting proof of income.

In particular, the query of the Credit Bureau file is intended to inform the bank whether the prospective customer has noticed negative payment behavior in the past. In addition, the Credit Bureau file provides information on whether the prospective loaner is repaying loans that are already running elsewhere.

The Credit Bureau query is primarily used by the bank to assess the risk of a possible default. If the consumer has not paid back loans in the past or has not paid them back on time, this is reflected in his Credit Bureau score. Based on the Credit Bureau score, if the bank has to assume that it is highly likely that the borrower will not repay the loan, it will probably reject the small loan applied for.

Alternative: Swiss credit

Alternative: Swiss credit

If a loan application is rejected due to negative Credit Bureau entries, this is disappointing for those interested in the loan. In some cases, the credit cancellation can cause consumers to look for credit offers without Credit Bureau, so-called Swiss loans.

The concept of Swiss credit actually has its origin in Switzerland. In the past, German consumers would gladly switch to loans from banks in Switzerland for the purpose of simplifying credit transactions and because of the interest rate there. Today, however, a Swiss loan is generally understood to mean a consumer loan that is concluded without a previous Credit Bureau check. Whether the lender actually comes from Switzerland is irrelevant for the classification as a Swiss loan. Rather, the term simply means that the lending takes place without obtaining Credit Bureau information.

Foreign providers of such “Swiss” loan offers promise the borrower to neglect negative Credit Bureau entries when lending or not to query Credit Bureau at all. However, this often does not mean that the lender does not request any information about the creditworthiness of his borrower.

Even if a foreign provider offers a loan without a Credit Bureau query, they still have opportunities to find out (at least to a limited extent) the creditworthiness of a prospect. For example, with foreign lenders, it may become necessary to submit proof of income for the loan. If the presented proof of income does not convince the lender, there is the possibility of rejecting the credit request.

In addition to the requirements for a loan, the conditions of the so-called Swiss loan differ significantly from those of a “conventional” small loan. Often, only loan amounts of up to 3,000 or a maximum of 5,000 USD are given free of charge. In addition, the repayment period is often designed to be very short.

Beware of dubious providers

If a bank or other lender grants a loan without first knowing the creditworthiness and payment behavior of the borrower, this carries a high level of risk. Accordingly, banks that grant loans without first obtaining Credit Bureau information often require high risk premiums. The effective annual interest rate due for the Credit Bureau-free loan is therefore often in the double-digit range – so that the costs for the foreign loan are sometimes comparable to those of an overdraft facility.

In addition, behind offers of Credit Bureau-free loans can sometimes hide dubious providers. It is not uncommon, for example, that such providers require a security deposit or down payment on the repayment amount from the prospective customer before the alleged payment of a certain loan amount. However, once this amount of money has been transferred to the alleged credit broker, the desired small loan is never paid out.

For consumers, this means that if a reputable bank rejects a credit request due to negative Credit Bureau entries, it is neither safe nor advisable to contact a possibly dubious foreign credit broker. Instead, it is better to improve your own credit rating in the long term and thus create the basis for lending by a reputable bank.

Tips for improving creditworthiness

Tips for improving creditworthiness

If the bank rejects a loan request due to negative Credit Bureau entries, this does not mean that the prospective loan holder cannot receive a small loan in the future. On the one hand, even negative Credit Bureau entries are deleted after some time. On the other hand, there are also opportunities to actively improve your own credit rating:

Avoid changing the place of residence too often : If the place of residence is changed frequently, this has a negative impact on the creditworthiness and may thus prevent the approval of a small loan. It is therefore better to avoid changing the place of residence too often or not absolutely necessary.

Always pay on time : If invoices are paid on time and dunning procedures are initiated, this has a negative impact on creditworthiness. This applies even if the invoice amount is ultimately paid. In order to improve your credit rating, late payments should be avoided and invoices should be paid on time.

Have incorrect entries deleted : Not all of the information contained in a Credit Bureau or credit report is always correct. Occasionally incorrect negative entries can occur. Consumers should therefore regularly request a free self-assessment, check it and have any incorrect entries deleted.

Apply for a higher overdraft facility : If the house bank grants a higher overdraft facility, this is evaluated as a positive credit rating by credit agencies. Even if it is not actually needed, it makes sense to set up a higher overdraft facility in order to improve your credit rating.

Small loans combined without Credit Bureau

Small loans combined without Credit Bureau

Although no bank in Germany grants a small loan without obtaining Credit Bureau information beforehand, foreign providers do offer such loans. However, in most cases they are characterized by high interest rates and conditions that are not very flexible. Anyone considering such a loan despite high interest costs and a lack of flexibility should definitely be wary of dubious providers. Particular caution is required if down payments or security deposits are required before the loan amount is paid out.