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A lender is a natural or legal person who grants a loan to a borrower. The law refers to a lender, another term is a creditor.

Credit is already granted in many life situations in which the parties involved may not be aware of it. For example, all contractual services that are initially provided without the intended consideration already constitute the granting of credit. These include advance payment, down payment, advance payment (customer credit) or delivery subject to reservation of title, as well as credit on account or supplier credit. A private lender also exists in the case of a personal loan or the deposit of savings or other bank balances.
Commercial lenders are, in particular, credit institutions. By law, the granting of money loans and acceptance credits (credit business) is considered a banking business and requires the permission of the banking supervisory authority. Conducting banking business without permission is punishable by law. In order to assess the credit risk, credit institutions check the creditworthiness of the borrower and require the submission of credit documents for this purpose. If the creditworthiness of the prospective borrower is not sufficient, the credit institution may require certain loan collateral to secure the loan.

Credit granted between private individuals for non-commercial purposes and not subject to consumer loan law does not require any formal requirements and can therefore be concluded orally. For reasons of evidence alone, however, it is advisable to record credit agreements in writing and to make essential agreements. These include in particular the loan amount and type, the interest rate and the repayment. For the interest rate and repayment, payment dates agreed in advance should be stipulated in the contract. The credit agreement is concluded when it has been jointly accepted by the lender and the borrower by signature.

One of the few contractual obligations incumbent on the lender – in addition to the disbursement of the loan amount – is the duty to provide advice in the case of credit institutions. As lenders, they have a statutory duty to adequately explain the individual contractual provisions of a consumer loan agreement to the borrower. Accordingly, “explain” means that the lender must make the contract and the contractual terms understandable to the borrower. The extent of the explanation depends on the complexity of the specific loan transaction and also on the borrower’s ability to understand, to the extent that this is apparent to the lender. However, this obligation does not require a direct conversation between the contracting parties in which the lender would have to get an idea of the person of the borrower. Therefore, written or telephone explanations are also possible. The fulfillment of the obligation to provide explanations shall be based on the understanding of the average borrower. The greater the difficulties of the average borrower or, to the extent recognizable, also of the specific borrower in understanding a contractual clause, the higher the requirements are to be placed on the fulfillment of the obligation to provide explanations. The obligation to provide explanations is also increased if the lender includes new or unusual contractual clauses in the contract.
The explanation is to be distinguished from the advice based on a special consulting contract and remains behind it. The purpose of the explanation is not for the lender to advise the borrower on a contract that is optimally tailored to the borrower’s purposes and financial circumstances. Rather, the lender should present the features and consequences of the contracts offered so that the borrower can make an informed decision on his own. The purpose of the explanation is to enable the borrower to assess whether the contract is useful to him or not on the basis of his financial circumstances and the purpose pursued by the contract.
Based on the provision, the lender is not obliged to check whether the purpose pursued by the borrower is reasonable for the borrower. In accordance with the Consumer Credit Directive, the following must be explained in particular: pre-contractual information in accordance with the law, the effects typical of the contract and the main features of the types of contract offered. In this context, the term “where applicable” is used to clarify, not to exhaustively list all explanatory obligations. The provision does not affect other obligations to provide explanations and, in particular, to provide clarification. This applies in particular to such duties of explanation as have been elaborated by case law. If there is no need to explain the pre-contractual information, for example because the borrower has understood it, no additional explanation is required.