A credit line offers you the flexibility to draw on amounts of money whenever you need them. This could be the full amount or partial amounts. You only pay interest on the amount you have drawn on. Bear in mind, however, that the interest rates are variable, and that they can rise or fall in line with changes in market interest rates. Once you have repaid the loan, you can redraw on the facility as agreed in the credit line, similar to an arranged overdraft (Dispositionskredit) on a current account.

A low monthly minimum repayment is usually agreed. This normally lies between one and two percent of the current loan amount or the agreed credit line. But you can also repay the money borrowed all at once. Your personal credit line is agreed between you and your credit institution. Depending on your needs and your creditworthiness, credit lines are normally granted up to an amount of between 2,500 and 25,000 euros.

The term of the credit line is unlimited. The credit line is granted on a fixed basis, but the bank is allowed to terminate it at any time by giving advance notice as contractually agreed (ordentlich kündigen).

For which customers might a credit line be suitable?

A credit line or contingent facility allows you to borrow money at any time at short notice and use the funds for a brief period – for instance, if you require financial leeway in order to make an unexpected purchase. It can therefore serve as an interesting alternative to an arranged overdraft.
A credit line is less expensive than an arranged overdraft, but is more expensive than a normal instalment loan. If you require money for longer than 12 months, a traditional instalment loan is in most cases the better solution.

What are the risks associated with a credit line?

• If, owing to a sudden loss of job for example, you are no longer able to pay the monthly minimum instalments, there is a risk that you could become overindebted. The credit institution is then allowed to terminate the credit line. This could mean that you would require follow-up financing (Anschlussfinanzierung) in order to repay the remaining loan amount. Anyone not in a position to do this risks being given a negative entry in the credit worthiness report issued by the German central credit reference agency Schufa.
• Changes in interest rates, both up and down, are possible at any time. The development of the loan interest rates is usually linked to a reference rate such as that of the European Central Bank (ECB).

Where can I take out a credit line?

Information and advice can be obtained at the branches of the credit institutions, online or by telephone at the respective provider. This is also where you can sign the contract for your credit line.

The interest rate varies from bank to bank. If you want to compare the various offers of the credit institutions, make sure that you focus above all on the effective interest rate. This is because, unlike the nominal interest rate, the effective interest rate takes into account not only the terms of repayment and, where applicable, the disbursement rate, but also the costs for managing the account. An assignment of the loan by way of security (Sicherheitsabtretung) and a residual debt insurance nresidual debt insurance (in most cases in the total amount of the loan facility) can also influence how high the effective interest rate is set.

The credit institution is obliged to provide you with information on all costs and fees, on the borrowing rate and the effective annual interest rate.

Furthermore, the bank must inform you about all other contractual conditions, such as the terms of repayment, the possibilities for terminating the loan and interest rate adjustments..

Which obligations must I fulfil when taking out a credit line?

• You must evidence your salary payments and disclose any incoming and outgoing payments and regular deductions from your account etc. so that the credit institution can check your solvency. You may also have to agree to the bank obtaining information about your creditworthiness from Schufa or other credit reference agencies.
• You need to name a reference account, generally your current account, into which the money that you draw on from your credit line is transferred.
• In accordance with the loan agreement, you must pay the interest owed and are responsible for ensuring that the bank receives the repayments for your credit line on time.
• You must ensure that your utilisations remain within the agreed credit line. If you exceed the credit line, you not only risk having to pay higher interest rates. The bank could also terminate the credit line.

In what way are providers of credit lines supervised?

Domestic banks require authorisation from BaFin for conducting deposit business. German banks are supervised by the Deutsche Bundesbank and BaFin and, if they exceed a certain size, also by the European Central Bank (ECB) within the scope of solvency supervision.

BaFin does not check whether the credit institution is offering you a credit line at favourable conditions or whether the interest rates being demanded are appropriate. BaFin is also not responsible for checking the contractual provisions.