Austrian Consumer Credit Act (VKrG) Explained

The Consumer Credit Act is of crucial importance for the Austrian credit market! Unfortunately, however, many people in Austria are still not entirely clear about what exactly it entails. With this article, we would like to explain and summarize the sometimes complicated formulations of the Consumer Credit Act in a simple and understandable way.

Scope and Objectives of the Consumer Credit Act

What is the Consumer Credit Act?

The Austrian Consumer Credit Act ( Verbraucherkreditgesetz, VKrG ) is the legal foundation that regulates the market for consumer credit . It implements the EU Consumer Credit Directive, serves to protect consumers from over-indebtedness and sets clear guidelines for the granting of personal loans . The law covers different types of consumer credit, including installment loans and overdrafts, and aims to promote transparent and fair lending practices.

Objectives of the Consumer Credit Act

The main objectives of the VKrG are multifaceted and aim to promote a balanced relationship between lenders and borrowers:

Protection against over-indebtedness: The obligation to check creditworthiness is intended to protect consumers from financial bottlenecks.
Transparency: Clear rules for advertising, pre-contractual information and contract content ensure better comprehensibility and comparability of offers.
Fairness: The law establishes fair conditions for withdrawal and early repayment in order to protect the interests of borrowers.

Who or what is subject to the Consumer Credit Act?

The VKrG applies to credit agreements that lenders conclude with consumers in Austria. It applies, for example, to:

Personal loans (whether for the purchase of cars, holidays or other private consumption)
Installment loans
Certain leasing contracts with an obligation to purchase
Credit lines and overdrafts

Which loans are not covered by the VKrG?

Despite its broad scope, there are certain forms of credit that are largely exempt from the VKrG. These include, for example:

Loans that must be repaid within three months and involve only insignificant costs.
Mortgage-secured real estate loans – these are regulated separately in the Mortgage and Real Estate Credit Act (HIKrG).
Loans with a total amount of less than EUR 200 and, as a rule, of more than EUR 75,000
Loans granted by private individuals to each other, provided that they do not act commercially.

The Austrian Consumer Credit Act thus forms the basis for a regulated and secure credit market that takes into account the interests of both borrowers and lenders. With this information, you’ll be well placed to explore the further details of this important law.

Basic Principles of the Consumer Credit Act

Rules for advertising and pre-contractual information

The Consumer Credit Act lays down rules for the advertising of loans: if advertising mentions interest rates or costs, it must also state standard information such as the effective annual interest rate. Before the contract is concluded, the lender must provide you with the standardised „European Standard Information for Consumer Credit“ so that you can compare offers.

Creditworthiness check: KSV1870, CRIF and the small loans register

Before granting a loan, the lender must assess your creditworthiness (§ 7 VKrG). The purpose of this check is to assess the applicant’s financial situation and ability to repay. The following aspects are typically taken into account:

Income and expenses
Existing loans and other liabilities
Payment history and previous borrowings

Credit agencies such as KSV1870 (which also manages the banks‘ small loans register, the Kleinkreditevidenz) and CRIF play a central role in this, as do the banks‘ warning list for payment defaults. If the check gives rise to serious doubts about repayment, the lender must warn you. The goal is to ensure that the borrower is able to repay the loan without running into financial difficulties.

No statutory maximum interest rate

Unlike some other countries, Austria has no statutory maximum interest rate for consumer loans. However, contracts with usurious conditions are void under § 879 ABGB. The most important protection is therefore transparency: the effective annual interest rate must be stated so that you can compare the total cost of different offers.

Right of withdrawal and early repayment

The Consumer Credit Act grants borrowers the right to withdraw from a loan agreement within 14 days without giving reasons (§ 12 VKrG). In addition, consumers can repay the loan in full or in part at any time (§ 16 VKrG). For fixed-rate loans, the lender may charge compensation of max. 1% of the amount repaid early (0.5% if the remaining term is one year or less); for variable-rate loans, no compensation may be charged. Both rights are designed to provide borrowers with more flexibility and protection.

These basic principles show how the Austrian legal system protects borrowers from potential financial risks while creating a fair and transparent environment for lending. In the next section, we will look at how you can improve your creditworthiness.

Improvement of creditworthiness in the context of the Consumer Credit Act

Improving creditworthiness in Austria: strategies and measures

Creditworthiness plays a central role in the granting of loans. Having a good credit rating means better terms and a higher probability of getting a loan approved. Here are some effective strategies and measures as an example to improve your credit rating in Austria :

Create an overview: Start by getting an accurate overview of your financial situation. This includes income, expenses, existing debts, and liabilities.
Reduce debt: Try to pay off existing debts, especially those with high interest rates. Not only will this improve your credit rating, but it will also save on interest payments.
Make payments on time: A punctual payment history is essential. Missed or late payments will have a negative impact on your credit rating.
Minimize credit requests: Many loan applications within a short time can make lenders cautious. Only apply for loans if it is really necessary.

Deleting Bad Credit: Myths and Possibilities

There are many myths and misconceptions surrounding the topic of „deleting bad credit“. While correct negative entries at KSV1870 or CRIF cannot simply be „deleted“, there are legal ways to improve your credit rating:

Request corrections: Request a free self-disclosure under Art. 15 GDPR regularly and ask for corrections if there are any errors.
Improvement of the financial situation: In the long run, the best strategy is to improve your financial situation by paying off debt and improving your income situation.
Wait: Negative entries are only stored for a certain period of time. At the end of this period, they are deleted.

Improving creditworthiness is a process that requires patience and discipline. By following the above strategies, you can strengthen your financial health and increase your chances of getting favorable loan terms.

In the following section, we will look at the obligations and rights under the Consumer Credit Act in order to gain an even deeper understanding of this important topic.

Obligations and rights under the Consumer Credit Act

For borrowers: What does the VKrG provide?

Withdraw from the loan

The Consumer Credit Act grants borrowers the right to withdraw from a loan agreement within 14 days without giving reasons. The period usually begins with the conclusion of the contract or, if later, with receipt of the contract terms and information. This right of withdrawal provides an important safety net in case you want to reconsider your decision.

Repay the loan early

Borrowers also have the right to repay the loan early at any time. This can be especially beneficial if you have received funds and want to save on interest costs. Note the possible compensation for fixed-rate loans (see above).

Timely payment of loan installments

Paying the loan installments on time is not only the most important duty of the borrower, but also protects you from possible negative consequences such as reminder fees, default interest or negative entries at credit agencies.

For credit institutions: requirements and obligations

Credit check

Lenders are obliged to carry out a careful assessment of creditworthiness before granting a loan (§ 7 VKrG). This protects both the borrower from over-indebtedness and the lender from default risks. Loans without a credit check are therefore not offered by reputable lenders.

Information obligations

Lenders must inform you comprehensively before the contract is concluded and specify the essential content in the loan agreement, including the borrowing rate, the effective annual interest rate, the total amount to be repaid and the repayment plan. This supports transparency and helps to prevent over-indebtedness.

The effective annual interest rate in detail

The effective annual interest rate shows the total cost of the loan as an annual percentage, including fees. As there is no statutory interest cap in Austria, it is the most important figure for comparing offers and recognising expensive loans.

The Consumer Credit Act provides a comprehensive framework that clearly regulates the rights and obligations of borrowers and lenders. By understanding these aspects, consumers can make informed decisions and improve their financial health.

In the next step, we will look at a frequently asked question about the Consumer Credit Act to give you an even deeper understanding.

FAQ: Frequently asked questions about the Consumer Credit Act

When may a lender not grant a loan?

Under § 7 VKrG, the lender must assess the consumer’s creditworthiness before concluding the contract. If this assessment shows that the consumer is unlikely to be able to repay the loan, the lender must warn the consumer; responsible lenders will not grant the loan in this case. You can read the full text of the law in the Legal Information System (RIS) .

Summary and conclusions

The Austrian Consumer Credit Act provides a comprehensive legal framework that protects the interests of both borrowers and lenders. Rules on advertising and information, the obligation to state the effective annual interest rate and the creditworthiness check ensure fair and transparent lending. For consumers, the law provides important safeguards, such as the 14-day right of withdrawal and the possibility of early loan repayment.

Improving one’s creditworthiness and understanding one’s own rights and obligations are essential to benefit from favorable credit conditions and ensure financial stability. By familiarizing yourself with the provisions of the Consumer Credit Act and acting responsibly, you can achieve your financial goals while protecting your financial health. If you have any questions, write to us at info@kredit-fuchs.at.