Many people use loans today. Someone takes a loan for buying a home, someone takes a loan to buy a car, and someone takes a loan for university studies. Different loans have different features and if you are not an expert it can be difficult to understand the specifics of the loan. We will talk about the loan terms to individuals in the present article.
What is loan?
Loan is money that the bank gives to a person for certain purposes and the person must return it within a specified period and to pay interest on the loan.
We already have talked about short-term credits (loans) to companies before.
Individuals may receive loan for the following purposes:
- Purchase of real estate
- Purchase of cars
- Consumer purposes
Purchase of appliances, housing repair, travels and other purposes can be attributed to consumer purposes.
You need to clearly define the following loan terms in negotiations with the bank:
1. Loan amount.
You know how much money you need, but the bank can give you a smaller amount based on your income level analysis.
2. Interest rate.
You need to know the loan interest rate. You should also know that interest rates are fixed and floating.
A fixed interest rate does not change during the validity period of the credit agreement.
Floating interest rate may vary depending on certain conditions.
It is better to choose a fixed interest rate because the floating rate is quite risky.
3. The presence of additional fees and charges.
Banks may require additional fees for servicing a loan other than the interest rate. These additional payments are called loan commissions. This may be fees for opening an account, the account maintenance or for sms informing, etc. You must be aware of any existing commissions.
4. Procedure for changing the conditions of the loan agreement.
Procedure for changing the conditions must be specified in the loan agreement. Some banks are trying to bring the following items in the contracts that allow them to change the terms of the contract unilaterally. Such points in the loan agreement are unacceptable.
5. Collateral terms.
Each loan is provided by some collateral. If you purchase a real estate or a car this property or car becomes collateral. Bank may require other collateral for loans for consumer purposes.
You need to make sure that the value of collateral and the loan amount are adequate. The collateral value can not exceed loan amount for 15-25% for loans on real estate, 20-50% for loans for cars and 30-100% for consumer loans in general.
6. Responsibility for untimely repayments.
Each loan agreement provides some liability for untimely repayment the loan or the amount of interest or commissions. Penalties or fines are the types of such liability.
Penalty is a fee that is charged for each day of delay in repayment.
Fine is the amount of money which you have to pay once for each fact of violation of the contract terms.
The fines and penalties should also be adequate.
A penalty may exceed the credit interest rate of 2 or 3 times but no more. Amount of the fine shall not exceed 10% of the loan amount.
I hope these simple tips will help you to get a good bank loan for your needs.