Special purpose loan – what is it and what is it for?

The banks are quite shy about trying to encourage us to use financing for a specific purpose. From the bank’s point of view, such lending seems less risky and creates the opportunity to propose a lower price for the loan.

Among the special purpose loans, we include a mortgage. The bank then knows what the borrower takes out the loan for, which distinguishes this situation from the case when the cash loan is granted. How does the issue of specific loan offers look like in reality? We checked!

Special-purpose loan – what is it for?

Special-purpose loan - what is it for?

Usually, when we arrive at the bank, or even earlier when we look around among the available loan offers that seem favorable to us – we already know what we will allocate the funds possibly obtained from this institution. This is how we get to the heart of the matter, i.e. to review the subject of earmarked loans. It is worth being interested in them.

So what is an earmarked loan? This term applies to loans for which banks require a specific purpose for which the money will be spent. These can be various types of loans, including car, mortgage or installment loans. They are granted for many products or services, although most often we deal with loans for the purchase of an apartment.

It can also be said that a special-purpose loan is a bank loan that is intended for a specific purpose. This is a factor that clearly distinguishes specific loans from other credit or loan obligations.

A characteristic feature of special-purpose loans is that the money paid by the bank does not go to the borrower’s account or pocket, but to the account of the person selling the apartment or car, for example.

Special-purpose cash loan

Special-purpose cash loan

In general, a special-purpose loan must have a clearly defined purpose of spending the acquired funds, and a cash loan can be issued for any purpose that you do not need to notify the bank of.

However, if you are applying for a special-purpose cash loan, you must state in your loan application what you want to take it for, e.g. for holidays, the purchase of home electronics and household appliances or for the renovation of an apartment. An installment loan can also be considered an earmarked loan – a cash loan repaid in installments.

Advantages of the special-purpose loan over cash

Special purpose loans are usually cheaper than cash loans. They pose less risk to lenders, which is why they can offer customers a lower interest rate for such a commitment.

The reduced interest rate automatically reduces the total cost of the loan. The maximum loan amount we can get is also increasing and the loan period is getting longer.

Special purpose mortgage

A mortgage, i.e. a long-term loan secured by a mortgage on a residential property for the bank, is a special-purpose loan. The entry to the real estate mortgage, valid until the loan is repaid in full, is a loan that allows you to finance the purchase of the property, but you can also buy a construction plot or carry out extensive renovations.

A special-purpose mortgage usually has a lower interest rate, as the debt is secured by a valid entry in the real estate mortgage, which means that the credit risk is very low.

Conditions for granting a special purpose loan

bank

A special-purpose loan is a great solution for all borrowers who know exactly what they want to spend on the loan or credit. The condition for granting a special-purpose loan is to document the expenditure made using the special-purpose loan in the form of bills or invoices. In this case, the bank is willing to grant a higher loan.

The basic condition for granting a special-purpose loan is entering the purpose for which the funds will be spent in the loan application. If the subject of financing is also to be collateral for loan repayment, then it is necessary to present along with the loan application documents that will enable such collateral to be established.

Specific loan costs

The components of the cost of an earmarked loan are actually the same as for other loans, although usually lower. They include, among others:

  • credit interest accrued at the interest rate agreed with the bank,
  • the commission charged for joining the loan,
  • costs of establishing loan repayment security,
  • possible credit insurance.

Thanks to solid security and knowledge of the purpose of spending funds from a special-purpose loan, the bank can offer the customer a more favorable interest rate on such an obligation.

Target loan interest rate

What interest rate will the targeted loan have? It will certainly be lower than the interest rate on cash loans whose purpose is unknown to the bank. The lending institution is confident that the funds transferred will be used properly.

The interest rate reduction on a special-purpose loan is also influenced by the fact that the loan repayment security is most often set in connection with it.

Special-purpose loan collateral

An earmarked loan, e.g. a mortgage for a flat or a car loan, has collateral to pay off the liability. It could be:

  • mortgage on residential property;
  • loan repayment insurance, e.g. fire and other random events insurance;
  • assignment of the car as security;
  • assignment of rights from a vehicle insurance policy;
  • civil bail, etc.

It depends on the bank and the individual arrangements related to the granting of a special-purpose loan.

Loan period with a special purpose loan

Depending on the type of special-purpose loan granted, the loan period may be from several months to even several dozen years, as is the case with a mortgage. The loan period also depends on the age of the oldest borrower submitting the loan application.

Repayment of a special purpose loan

A special-purpose loan is repaid on the same terms as any other loan, e.g. cash loan. Most often this is done in installments set in the repayment schedule. The principal and interest installments are repaid gradually, every month, until the end of the loan period.

Banks offer a fast loan of 1500 USD.

If you need a quick loan of 1500 USD, there are several ways to get such a loan. You can contact your house bank or other banks that may be domiciled in Germany or abroad. Depending on what you choose, you have to meet different requirements. A quick loan is an installment loan that is freely available in many cases. Things only behave differently if a purpose is expressly stated.

Credit requirements

Credit requirements

1500 USD is a relatively small loan amount that can be repaid at least in the medium term. However, you should note that you not only have to pay monthly repayments for the loan, but that you also have to pay interest. This interest is usually higher for foreign lenders than for German lenders. This is due to the fact that foreign lenders have little information about the borrower’s personal credit rating because they do not request Credit Bureau information from him.

This is different with Cream banks. As a matter of principle, they do not grant loans without first having inspected the Credit Bureau. If there are negative Credit Bureau entries about you, it could be difficult to obtain a loan in Germany. Here you can switch to private lenders or foreign banks.

In any case, income plays a central role in assessing your creditworthiness. Employees have the best chance of getting a loan, regardless of whether they apply for it at home or abroad. Even if a quick loan of 1500 USD is a smaller amount, there should be an income above the garnishment-free limit.

The banks and the savings banks have defined certain guidelines here on how high the income should be in a specific case. Income amounts that are below the garnishment exemption limit are generally not attachable and must remain untouched by all lenders. This is exactly why the banks are demanding an income above the garnishment exemption limit. Only amounts that exceed the garnishment exemption limit are earmarked for payment of the repayment installments.

In addition, only these amounts can be seized if the borrower does not adhere to the installment payment agreements and falls behind with several installments. Income amounts below the garnishment exemption limit are intended to cover one’s own livelihood. In this way, the existence is to be secured even if attachments are present.

If you cannot show your own income or if the credit conditions are not sufficient for another reason, you can provide additional collateral for a quick loan of 1,500 USD. The lender and the borrower must individually clarify which collateral can be used. A guarantee would be one such option. A person with a secure income can also act as a second applicant for the quick loan of USD 1,500. Other options are the pledging of movable property and the pledging of claims from insurance or building society contracts.

Loan terms

Loan terms

Those who want to opt for a quick loan of 1,500 USD usually do so because they urgently need money. For this reason, the loan application is processed faster than is usual with other forms of credit. It often takes no longer than a few minutes before the borrower can count on a binding decision as to whether the loan application will be approved. If this is the case, the loan can be paid out immediately. This can be done either in cash or by transfer to a checking account.

The loan amount has already been set at 1500 USD. However, this does not apply to the term and the credit rates, nor to the interest. With a quick loan, it is possible that very low monthly repayment rates are agreed in order not to burden the borrower’s budget too much. This is particularly interesting for people with low incomes. The rates are sometimes so low that they hardly matter every month, a fact that can also be important for people with a slightly higher income. If you agree low rates with your lender, you should also make sure that the interest for a quick loan is not too high 1500 USD. The same applies of course to all other cases in which you want to take out a loan.

A quick loan of 1500 USD can be divided into a quick loan for free disposal and a quick loan with earmarking. A purpose limitation can exist, for example, with a car loan or a dealer loan. Otherwise, you can use the money the way you want without having to provide the bank with proof.

Application, approval and repayment of the loan

Application, approval and repayment of the loan

Many people prefer to apply for a loan online. This has several advantages, because you don’t have to leave the house, and you don’t have to rely on the bank’s opening hours to fill out and send the loan application. If you prefer a personal application in the branch, you are also free to do so. Any questions that may arise can be clarified immediately. In any case, you should have all the documents you need for the quick loan of 1500 USD ready. In this way, the loan decision can be made quickly and you avoid inquiries that often lead to delays in loan processing and loan payment.

Often you can expect a decision from the lender after just a few minutes. If this decision is positive, the money is transferred or paid out in cash. This does not have to be at the bank counter, but can also be done at a post office counter or by delivering the money by courier. All factors that are important for the quick loan of USD 1,500 are recorded in writing in a loan agreement.

The term of a quick loan of 1500 USD is basically variable. If you can repay the loan at very short notice, very short terms with relatively high repayment rates are possible. Otherwise, there is often the possibility that you can extend the term and in return that the monthly credit installments will be reduced.