CREDIT (from lat. creditum-loan, debt, credere-to believe) – a loan in monetary or commodity form, provided to the borrower on the terms of repayment, urgency and payment. The basis of the loan is the appearance of temporarily free cash in the process of capital circulation.
Form of credit
It has various forms of manifestation: commercial, banking, state and international.
The Bank form of credit (Bank loan) is the most common. Credit is provided by banks in monetary form from their own or borrowed capital is carried out in the form of issuing loans, accounting for bills of exchange, etc. In terms of volume, the loan under the Bank form of credit is significantly larger than the loans issued under each of its other forms.
The term of the loan
The time for which the loan is issued. Allocate the full term of the loan, the term of repayment of the loan, its use, etc. For the borrower, the moment of issuing the loan is important, it is from this point that the loan term begins to count and, accordingly, interest accrual.
The amount of the loan
The amount of funds in the corresponding currency provided on credit, determined by the need and possibility of their receipt by the client.
Currency of the loan
The name of the monetary unit of the loan agreed between the lender and the client may not coincide with the currency of repayment of the loan.
Interest rate and other payments/commissions
Interest rate – the established fee for using the loan, expressed as a percentage of the loan amount for a certain period (year, month, etc.). Do not take the interest rate as the main guideline when choosing a loan. So often it is only illusory in nature and is not an unambiguous parameter in determining the loan fee (but rather a formal one). Additional payments and commissions can significantly increase the cost of the loan provided. Which, of course, can complicate the search for a suitable offer. Learn more about the effective loan rate prior to finalizing the loan agreement.
Method of repayment of the loan
There are 2 main ways to repay a Bank loan:
Annuity – a periodic payment of a fixed amount, including principal and interest, in the repayment of the loan, regulated by the terms of the loan agreement.
Differentiated payment – a method of repayment of a loan, in which the amount of payment is calculated directly from the amount of debt on the loan for a certain period of time.
There is also a periodic repayment of a fixed share of the principal debt and accrued interest for a certain period. For example, “monthly not less than 2% of the principal debt and the amount of interest accrued for the period for using the loan”. This method is often used for credit cards.
Overdraft (Overdraft loan)
The amount in excess of their own funds on the card, which the cardholder can repeatedly spend with its subsequent reimbursement and payment of accrued interest within the agreed period. Currently, an overdraft loan is no longer uncommon. Overdraft loans are often provided to salary card holders at the relevant Bank.
Early repayment of the loan
Repayment of all or part of the loan amount before the repayment period specified in the loan agreement. The loan agreement may provide for a moratorium (ban) for early repayment of the loan within a certain period, or sanctions (additional fees). But even if a Commission is provided for early repayment of the loan, it may be more profitable to still pay the Commission, but save on paying for the loan in subsequent periods.
Collateral for the loan
Additional loan repayment guarantee provided by the client to the Bank.
The main types of collateral for a Bank loan are: guarantee, pledge, transfer of title, security deposit.
Loan agreement, other terms and nuances
The provision of a loan by the Bank involves the conclusion of a loan agreement in writing. Under the loan agreement, a Bank or a non-Bank credit and financial institution (lender) undertakes to provide funds (credit) to another person (lender) in the amount and on the terms specified in the agreement, and the lender undertakes to return (repay) the loan and pay interest for using it.
Amendments and additions to the terms of the loan agreement are possible only with the conclusion of an additional agreement to the loan agreement.
The essential terms of the loan agreement are the amount (loan amount), term, interest rate, and so on.
Should I use the loan?
This is a purely individual question, when considering which You have to weigh a lot of factors for and against. It should be taken into account that the proposals of individual banks may contain concessions in certain requirements, which increase the need for credit in the eyes of the client in comparison with their capabilities.
However, credit can also be an alternative to long-term accumulation of funds, which is also facilitated by an extensive list of goods purchased on credit. The reliability and objectivity of information about the loan, the payment for the loan should be taken into account in the process of its selection of the Bank.
The probability of the Bank’s refusal of the loan
The Bank has the right to refuse to conclude a loan agreement if there is information that the loan amount provided to the client will not be returned (repaid) on time, if the client does not provide security for the fulfillment of obligations under the loan agreement, if there are other grounds that can affect the fulfillment of obligations under the loan agreement by the borrower or provided for by the current legislation.
If there are loans from other banks
It is necessary to know that when making a decision on granting a loan, the Bank takes into account the availability of loans from other banks. This information is always specified in the borrower’s application form when applying for a loan.
The procedure for banks to obtain information about potential customers during the final organization of the work of the Credit Bureau will be simplified. This gives banks the opportunity to more accurately weigh the risks assumed in each case. However, for the client, this may be the reason for reducing the size of the loan, or even refusing to receive it at all. Learn more about your credit history…
Types of credit provided by banks to individuals
Consumer credit – a loan issued for the purchase of any goods or services, such as furniture, video equipment or a tourist ticket. It is implemented either in the form of selling goods with deferred payments through various stores, or in the form of providing a Bank loan for consumer purposes.
Car loan— a loan issued by a Bank for the purchase of cars, both new and used.
Real estate loan — a loan issued for the purchase or construction of real estate (if a mortgage, then necessarily secured by real estate as security for the repayment of the loan).