Yes, they do. But it is still possible to get loans. Here just the credit conditions have to fit the circumstances. If this is not the case, there are other alternatives to qualify for medium or long-term loans. But why does an employment contract affect creditworthiness?

All facts about the guidebook “Loans on a fixed-term contract” at a glance:

  • In Germany, a distinction is made between fixed-term contracts with and without material reason.
  • Temporary contracts without material reason may not last longer than two years.
  • Temporary contracts with material reason can theoretically be extended endlessly, as long as no misuse exists.
  • Alternative loan providers are private lenders, employers or loans with guarantees.

1. Legislation on fixed-term employment contracts in Germany

German labor law distinguishes between fixed-term employment contracts with and without material reason. First, let us dedicate ourselves to the generally best-known fixed-term relationship without material reason. The following statements are based on the law on part-time work and fixed-term employment contracts, abbreviated to TzBfG, which comprises 23 paragraphs.

These have become increasingly popular in recent years. After that, new employees are initially only provided with fixed-term employment contracts. This serves the purpose of getting to know each other and setting the boundaries in the employment relationship. The official reason is the flexibility for the employer. Especially small companies can react more quickly to fluctuations in personnel requirements and have less high bound costs, which could not be reduced fast enough in an emergency.

In practice, it currently looks like that hardly any employer buys the proverbial “cat in a poke” and most of his undergoes a two-year trial period. Since the probationary period may not be longer than six months, the regulations on fixed-term contracts without substantive reason are exhausted for these purposes. In principle, employees may be limited to two years without any reason. Within this timeframe, only three successive employment contracts may be concluded without a reason. In the case of previous fixed-term contracts, no fixed-term employment without a reason may follow.

The first two years in a new job

Exceptions exist only if the employee is already over 52 at the time of the first contract and comes from long-term unemployment. This scheme is intended to help older unemployed people return to work. The maximum duration here is five years. 

On the other hand, fixed-term contracts with a material reason may be concluded for a longer period. Here one can also speak of so-called chain contracts, since there are no legitimate reasons for any reason. However, the legislator is willing to exclude the abuse of rights of these chain contracts. As an indication of this abuse six consecutive fixed term contracts are seen within four years. Excluded from this regulation are the areas of art, science and press.

If the temporary employment relationship ends – with or without material reason – and the employee appears to work as usual without a new contract, a permanent employment contract begins in which the employer tolerates the presence – whether consciously or unconsciously.

In Germany a distinction is made in terms of time with and without material reason. Limitations with material reason can be made for a maximum of two years, without material reason even for longer.

2. Short-term bank loans

After explaining the background of a fixed-term employment, it is probably also understandable why the granting of loans is difficult here. The potential borrower is – in German said – on top of the shooting list. He will be the first to cancel out any business or interpersonal problems. Therefore, a loan agreement is a risky business as long as the maturity is longer than the maturity of the loan.

Short-term loans can be taken for the purchase of furniture, leisure travel or for the payment of arrears of utility bills. As long as there are amounts around 2,000 euros, depending on their earnings during fixed-term employment, they are within the scope of the financially viable.

However, even temporary contracts may include probationary periods. During this time, most lenders are hesitant even with short-term small loans. Especially with chain contracts, probationary periods are rather uncommon and should be scrutinized with the help of a labor lawyer.

Also for a bank is decisive for which reason the contract is only temporary. If it is a purpose-based limitation, for example a project, the time limit can be set up over a period of several years. Here, a written statement from the supervisor helps to get the approval of a medium-term loan approved.

3. Alternatives to bank loans

Of course, there are plenty of alternatives to bank loans. However, one should not put in too much hope here. In general, all credit institutions are similar and check the potential debtor for his creditworthiness. If a secure source of income is not available, most institutions will reject a long-term credit agreement. Also to protect the debtor.

Modern forms of financial service providers include social lending. Here, private lenders take advantage of the benefits of the World Wide Web. On online platforms, borrowers can describe their situation, including income and purpose, and then get from lenders. Due to the direct comparison, interest rates are relatively low and are within the range of market interest rates.

The lending business with guarantors is already as old as the lending business itself. However, one should be aware in advance that depending on the amount of the loan and the guarantor in the worst case house and farm can lose. Therefore, one should set off in the assessment of his own situation, the pink glasses and practice self-criticism.

And even if a guarantor is ready, that is no guarantee for granting a loan. Even credit institutions have a certain duty of care and reject loans in utopian notions despite guarantors. Especially when it turns out that its existence in the event of insolvency by the debtor is seriously threatened.

Another source of income are private lenders, if possible from their own social environment. They know the debtor and can allow themselves a verdict on their creditworthiness from a different angle. You know if the debtor is more of a self-overrating “talker” or a reserved and deliberate type.

This alternative is even more appropriate if the credit does not burden the creditor. Then it is not bad when it comes to repayment defaults. On the other hand, if the creditor has saved the money himself from the mouth, it must also be carefully considered whether the relationship will withstand the burden of payment default.

The employer loan can also be considered for small loans. After all, there is a valid contract during the specified period. The employer knows exactly that he has to pay the salary and is thus his own safety. Here, however, it is important to observe all regulations in order not to get into tax difficulties.

Alternatives for temporary employment

For more information on the topic, see the guidebooks: “Loan with guarantor: a popular but risky funding”, “Credit from the employer: the boss, their creditors and sponsors” or “Private lenders: last chance or better conditions?”.

4. The conclusion: The granting of loans is possible in principle

4. The conclusion: The granting of loans is possible in principle

In principle, the granting of loans is also possible during a fixed-term employment contract. Here, however, banks will only approve loans whose terms end within the employment relationship.

For larger and thus mostly medium to long-term loans, help must be obtained from other sources. But again, most lenders check their creditworthiness. It should also be noted that all alternatives have their advantages and disadvantages.

The deeper it goes into the social environment, the greater the responsibility for others. Not everyone can handle the trust and responsibility that comes with it.