bank loan




The term "credit" in Latin means "loan". A loan is a great opportunity to buy housing, a car, equipment, other goods and services. For entrepreneurs, this is a powerful support for starting or growing a business.

All credit relations between the bank and the borrower are based on the following conditions

1) Urgency  - the funds provided to the borrower are free money of customers who are on the account with the bank in the form of deposits and, accordingly, must be returned to the owner within a certain time.

2)     Repayment  - banks should clearly monitor the size and terms of loans issued in accordance with their obligations, as well as control the repayment of the loan by borrowers.

3)     Payability - implies the willingness of the borrower to pay interest for the use of funds.

4)     Security - banks in most cases take the borrower's property as collateral. If the loan is not repaid, banks sell the property of the debtor and partially cover their losses.   

5)     Purposeful use - the use of the loan strictly for its intended purpose. Follow-up on the use of borrowed funds is mandatory. Any misuse will result in increased interest, penalties or revocation of the loan.

 

Compliance with the first two conditions allows banks to successfully conduct their activities.  

LENDING METHODS

There are several types of lending: a one-time loan , a line of credit , an overdraft , and a bank guarantee .

The most popular type of lending among the population is a one-time loan. A one-time loan allows the borrower to receive the entire amount at once. A striking example of this type of loan is consumer loans.

By urgency, the types of one-time loans are divided into:

Short-term loans - issued for several months up to 1 year;

Medium-term loans - from 1 to 3 years;

Long-term loans - issued for a period of 3 years or more. The calculation of the interest rate depends on the term of the loan.

TYPES OF LOANS

Target loans - a loan for the purchase of housing, a car, business development, purchase of household appliances, a loan for education or a wedding.

Non-purpose loans - loans without monitoring the use of credit funds and 100% collateral. Such a loan is usually issued by pawnshops and some microfinance institutions.

Consider some types of targeted loans.

A mortgage loan is a loan issued for the purchase or construction of a home. The property itself acts as collateral for the bank until the loan is fully repaid. Mortgages are issued for a long term (from 10 to 30 years) with a low interest rate. Recently, banking advertisements for mortgage loans are captivating with the words: “No down payment!” Indeed, there is a tendency to issue a mortgage without a down payment, which is usually 10-30% of the loan amount. But, at the same time, advertising will never say that in this case the bank requires additional collateral, which usually covers 30% of the loan amount.

A car loan is issued for the purchase of used or new cars. The term of a car loan is from 1 to 3 years. The purchased car is issued as a pledge.

A consumer loan  is issued for the purchase of goods and services, for education, apartment renovation. In the presence of collateral (car, apartment) on the loan, it is envisaged to reduce the interest rate and increase the funds provided.

TYPES OF LOANS BY SECURITY

Secured loans – the borrower covering the loan with collateral and/or insuring the loan by guarantors. The bank issues these loans under less stringent conditions than loans without collateral, because. the risk of default is reduced for the bank. Unsecured loans do not require a guarantee, but such loans are issued in much smaller amounts and there is more stringent control.

INTEREST RATES

The average interest rate of consumer loans  ranges from 15% to 45% per annum in national currency and from 12% to 36% in foreign currency.

Loans for business development have a lower interest rate: in national currency - from 20% to 36% per annum, in foreign from 17 to 33%.

Long-term lending for the purchase or construction of housing will cost you from 16% to 35% per annum in national and from 12% to 32% in foreign currency.

BASIC DEBT REPAYMENT SCHEMES

An annuity repayment schedule  is a monthly schedule for paying interest and principal in equal installments. The bank, in order to avoid early repayment, can build a payment scheme in such a way that there will be more interest in the repaid amount than the principal amount. Interest is charged on the entire loan amount. In this case, you will pay more interest than on a decreasing repayment schedule.

A differentiated (decreasing) repayment schedule is a uniform repayment of debt on a loan, interest is charged on a decreasing balance. That is, each subsequent payment is less than the previous one.

Flexible repayment schedule - a schedule that determines the timing and amount of principal and interest payments at the discretion of the client. True, our banks provide this service mainly to corporate clients and large organizations.

Akchabar recommends

You should not take a loan without a firm confidence in the repayment of borrowed money. Consider all force majeure situations, analyze the planned source of repayment.