General information on borrowing capacity

The term borrowing capacity describes the legal ability of a person or a group of persons (borrower) to take out a loan from a credit institution such as a bank (lender). Accordingly, the borrower must be capable of entering into legal transactions. In general, borrowing capacity is straightforward to handle:

Adults acting in their own financial interest are legally considered able to take out a loan, and a loan can be granted. How this plays out in reality can vary depending on the individual situation.

Borrowing capacity of a natural person

Natural persons are individuals or private persons who act under their own name and in their own private economic interest. Accordingly, for example, consumer loans are loans issued to a natural person.

The definition according to the BGB states that the applicant must be fully capable of entering into legal transactions, i.e. primarily of legal age. There must also be no guardianship in place. If these conditions are met, an adult with sufficient creditworthiness can in principle submit an application for a loan and is considered creditworthy, making the loan agreement legally effective. Schufa can provide information about creditworthiness.

Borrowing capacity is thus also referred to as creditworthiness. Creditworthiness is sometimes also called credit rating. Creditworthiness or credit rating is recorded by Schufa in the form of a score. Schufa only considers persons who are legally capable and who already have a payment history.

The capacity to enter into legal transactions is closely linked to legal capacity. Legal capacity means that a person is the bearer of rights and obligations, and the capacity to enter into legal transactions is the practical implementation of this.

Borrowing capacity of a legal entity

The definition of legal entities is: legal entities are companies that are considered corporations and want to take out a loan for the economic purposes of their company. The assessment of borrowing capacity for legal entities is carried out differently than for a natural person, but initially they are treated the same in terms of creditworthiness.

Depending on the form of the company applying as a legal entity, the applicants are either the company itself or the shareholders and managing directors.

Borrowing capacity of a partnership

A partnership (Personengesellschaft) in legal terms is an association of several persons formed for a specific purpose. For example, a married couple or an unmarried couple is considered a partnership if they jointly submit a loan application and are therefore assessed for borrowing capacity.

They are then jointly and severally liable for the loan – meaning both individuals can be required to repay the full amount.

If the first applicant defaults, the co-applicant can be obliged to repay the loan amount alone. There is no way to recover this from the first applicant unless this is regulated in writing between the members of the partnership.

Such internal arrangements do not interest the creditor; the creditor may, if necessary, seek repayment from a single member and is legally entitled to enforce the debt in this way.

What does borrowing capacity mean?

Borrowing capacity initially refers only to the applicant's or borrower's ability to legally take out a loan. However, banks generally assume that adults are capable of entering into contracts and do not perform a separate test for this. Minor applicants are immediately rejected, and this also applies if the applicant is under guardianship. One reason is that minors are not legally capable of entering into binding contracts.

Before signing the necessary loan contracts, the applicant is explicitly asked to confirm, or confirms by signing, their borrowing capacity and is thus responsible for assessing it. Once the applicant has signed the contract, it becomes legally effective upon loan disbursement. Borrowing capacity, however, does not mean that the loan agreement will automatically be approved.

It only confirms that the legal prerequisites are met and that it makes sense for the bank to examine the application. It is not an internal decision criterion; it is a basic prerequisite.

Can borrowing capacity be circumvented?

Borrowing capacity is an exclusion criterion for applicants who are not eligible for a loan. It cannot be circumvented – if the applicant is legally not creditworthy, the loan will not be granted.

However, they could ask another person to take out the loan. That person would then act as a kind of representative for the person who is not creditworthy. The two parties must then arrange between themselves how the repayment will be handled, because borrowing capacity also affects private loans. For example, an adult could not legally disburse a loan to a minor in a private context. Parents and their children or other relatives sometimes do so anyway because they are confident their arrangement will work. Legally speaking, however, it is still the parents who take out the loan – what they do with it is up to them.

If the person for whom the loan was actually intended cannot pay, the creditworthy applicant remains responsible for paying the ongoing installments. They should keep this in mind if they take out a loan on behalf of a person who is not creditworthy.