It is a very bitter reality: as long as you are in an employment relationship or at least have regular income, your own life is secured from an economic point of view within the conditions created by the income. This security means that purchases and, at best, larger investments – necessary or not – can be made. If the financial resources are insufficient in such a case, thanks to a regular income, financing with the help of a loan is also available.
If such a loan is then taken out, this usually means entering into a financial obligation to the lending bank over a longer period of time. So basically no problem, since the income is available for repayment. But what if, due to unexpected unemployment, this financial security dissolves into “noise and smoke”? What happens to the still existing installment obligations from the current loan? What is the legal situation in such a case and what can a borrower do in such a situation?
Loans must be repaid – even if you are unemployed
The fact is that everything that has to do with the credit system in any form in Germany is legally founded and regulated. In principle, this means that as a borrower you are obliged to repay a loan. The only exception here is if it can be demonstrated that certain clauses in the credit agreement are immoral and / or the interest rate corresponds to the legal definition of the usury. So if sudden unemployment makes it impossible to pay the monthly loan installments, good advice is expensive at first. Nevertheless, as a borrower, there are definitely opportunities to act in such a situation. Here are a few behavior tips in such a case:
- If it is clear that unemployment is likely to result in a loss of credit rates, the bank should and must be informed immediately. This is the only way to maintain the relationship of trust and to prevent an impending dunning procedure. This strengthens your own position for appropriate solutions to the situation
- If it is foreseeable that the unemployment rate is only temporary, the deferral of the loan installments is available as a solution for a predictable period. If the bank can be shown such a new source of income on the basis of appropriate documents such as a new employment contract, the bank will generally be open to a temporary deferral.
- If, on the other hand, longer unemployment is expected, debt restructuring should be negotiated with the bank. Their goal must be to adjust the monthly loan installment to the new financial situation. In practice, this means a significantly reduced monthly loan rate and the resulting extended loan term. However, even with such a debt rescheduling, the possibility of special repayments and early redemption of the loan should be agreed. A must especially for very long-term loans!
- In order to prevent such a situation from occurring in the first place, there is of course also the option of securing the loan against unemployment by taking out residual debt insurance. However, you should carefully inform yourself about the conditions of such insurance before you conclude the loan. Because here the costs fluctuate considerably and make the basically cheap loan considerably more expensive!
Impending loan default? Banks show willingness to talk
The basic rule is: in any case, the bank will always have a high interest in ensuring that the loan is properly repaid. If this is not the case, the bank would otherwise run the risk of default. A situation that banks generally shy away from. In such a situation, the bank advisors are therefore always required to signal a willingness to talk. Use this to your advantage!