An employment contract is a prerequisite for borrowing unless the borrower earns his income as a freelancer or self-employed. In addition, most direct banks and some branch banks only lend to dependent customers. A second variant of a loan with an employment contract is that a bank or credit agency requires the contract to be presented for loan processing.
The employment contract offers the security of loan repayment
The fact that most banks only grant a loan on the basis of an employment contract is based on their obligation to test the borrower’s ability to repay the loan. If you have an employment contract, you will receive a monthly income of the same amount with a pay slip or within a manageable fluctuation range with a pay slip.
In most cases, proof of the existing employment contract is provided by submitting the last three pay slips. Self-employed and freelancers submit proof of earnings instead of the payroll, however, these are easy to design compared to the income from an employment contract and do not offer the security that the borrower will generate comparable income in the future.
Why some banks want to see the employment contract
In the narrower sense, the loan with an employment contract means that the lender actually wants to see the contract, so that the customer submits a contract copy with his application documents. The advantage for the bank is that it can tell whether the employment contract is temporary, because the payroll does not usually show a time limit. In the case of employment contracts with a pay slip, the bank also becomes aware of a contractually stipulated number of minimum hours. Call centers and restaurants in particular are increasingly using contract models with a minimum number of hours, which is regularly exceeded if the order situation is good.
Since they compensate the benefits going beyond the contractual minimum working hours at the usual hourly wages and not as overtime that is better paid, the actually agreed contractual minimum working performance cannot be found in the salary slips. In this case, banks use only the income resulting from the minimum working hours in their household accounts, even if their customers have actually been doing more than this for years and, according to prevailing case law, can also claim higher working hours at any time due to common law.
Without the submission of the employment contract, the bank would assume that its borrower would have received approximately the same salary over the past three months, so that the loan with the employment contract and its submission to the financial institution has a negative impact on the loan applicant. Furthermore, financial institutions generally only grant loans to customers with temporary employment contracts if the repayment is made within the time limit.
When banks only request a pay slip, borrowers often keep the time limit secret, even if this behavior is wrong when there is an explicit request for the status of the employment relationship. In fact, more and more companies only limit employment contracts with new employees as a precaution, so that if contracts develop poorly, they can expire and do not have to terminate their business.