Whether on the Internet or at a branch bank, every loan application must be accompanied by documents on the applicant’s income and, if applicable, assets.
Proof of income from lending serves two main purposes:
With their help, possible loan collateral should be determined. And – more importantly – proof of income serves as evidence of the extent of economic resilience.
Credit scores from the various credit bureaus (Credit bureau and others) are used to estimate the reliability with which a credit customer will meet its obligations.
Proof of income, on the other hand, shows whether a borrower is financially able to service a loan of a certain amount, with a certain term and with a certain effective annual interest rate.
Banks use both elements of the credit check to create an individual score that is compared with the lending guidelines.
If the internal bank score is sufficient according to the lending guidelines, the loan customer receives the loan applied for. In the opposite case, the loan is rejected.
Submitting comprehensive, meaningful proof of income together with the loan application is therefore of crucial importance for lending.
During the loan application process, banks state which proof of income is required for lending. It is important not to forget any type of income in the credit request and to prove each type of income.
Proof of income from employment
Employees, including civil servants, are asked to provide copies of their payslips.
Most banks are content with payslips for the past two or three months. In addition, banks often expect copies of ongoing bank statements.
The period is different. It is often the past four weeks. Sometimes even the bank statements of the past few months are requested.
Other banks do without bank statements.
Banks that issue fully digitized loans, on the other hand, forego pay slips and only use bank statements as part of a so-called account view to check creditworthiness.
To do this, the applicant must provide the credit bank with the access data to his checking account via a secure connection.
However, special certificates of earnings are rarely requested.
If this happens, the borrower must contact his employer. The employer is obliged to issue such certificates of earnings.
Pay slips, bank statements and, where applicable, proof of earnings serve once as proof of the amount of current income and that of an employment relationship.
On the other hand, banks get insight into incoming and outgoing payments. Finally, banks can see whether there are attachments or assignments.
However, employment contracts to prove the existence of an employment relationship are only very rarely required.
Hardly any additional information can be derived from employment contracts. In particular, the actual earnings cannot be derived from the content of the employment contracts. Allowances, other salary components and tax bracket are not part of employment contracts.
Banks require pensioners to receive the latest pension notices.
Officials are asked to provide copies of the latest salary notices when granting a loan.
Proof of income from a loan without Credit bureau
Loans without Credit bureau are only granted to employees or civil servants.
Since the amount of the attachable income plays a special role with this type of credit because there is no Credit bureau information, strict requirements for the proof of income apply.
Sigma Bank from Liechtenstein is the only bank that grants loans without Credit bureau in Germany. Regardless of whether a loan application is made directly to the bank or through a credit intermediary, the following documents are required:
The last two original pay slips.
The original bank statements matching the pay slips or by uploading documents.
Account statements and wages received must be visible on the statements.
Proof of income for freelancers and traders
Borrowing means more work for the self-employed than for employees and civil servants.
While future monthly earnings for employees are relatively easy to predict, the self-employed often do not have regular monthly earnings.
Banks therefore need more material to be able to assess the financial resilience of the self-employed.
The idea behind it: The risk of credit default can only be limited by a precise analysis of the financial situation in the past and in the present. The more economically stable the company was over a longer period of time, the more likely it will be in the future.
That is why banks often require a mountain of documents. Credit institutions are particularly thorough with traders because this professional group tends to assume a weaker credit rating.
Self-employed applicants must demonstrate independence for several years. Two to five years are usual, sometimes even seven years are required.
Proof of social benefits
Beneficiaries of social benefits alone do not receive loans. However, some banks still allow a loan application if a solvent co-signer is made who has income from self-employed or dependent work.
If several people apply for a loan, each person must provide proof of income for themselves. If an applicant receives state benefits, nothing else applies.
Anyone who receives unemployment benefit, sickness benefit, parental benefit or other social benefits should therefore provide the relevant evidence (notices).
Proof of other income
Occasionally, loan applications are rejected because applicants have forgotten to report additional income.
Income does not have to come exclusively from self-employment or employment.
Relevant income also includes, for example, income from renting and leasing, interest income from investments or income from self-employed or dependent employment.
Getting child benefit can also play a role in lending.
Additional sources of income as well as the main income have to be proven.
This is done, for example, by submitting notices, custody account statements, account statements with the corresponding incoming payments and rental or lease contracts.
Additional income from dependent work can be proven through pay slips.
Loan guarantees play a major role not only for the self-employed. They can also make borrowing easier for employees and pensioners.
Direct banks largely grant loans automatically, with little regard for special circumstances among individual borrowers.
Therefore, apart from salary assignments and co-signing of the loan agreement, no other collateral is often accepted.
However, the situation is different for branch banks. House banks are more willing to accept additional collateral to improve creditworthiness requirements.
However, not every asset comes into consideration. The house bank will also be very reserved when it comes to stamp collections, collections of modern art or antiques.
When it comes to collateral, two points are particularly important for banks:
The value of the asset must be easy to determine and it must be possible to realize it in the event of a loan default without difficulty.
The following are the main types of loan collateral: securities holdings, all kinds of savings, capital life insurance and private pension insurance, real estate and motor vehicles.