Banks are organizations that are familiar to each of us, we all use different services that they provide. One of these services is a loan. But not everyone knows how this service works. To become knowledgeable in this topic, you need to understand this.
A loan is a loan provided by a lender in cash or commodity on terms of repayment of money or goods to the borrower.
It arises from the function of money as a means of payment when goods are sold not for cash, but by installments. In addition, the unevenness of the circulation of fixed and circulating capital in the production process, i.e. different times of production and circulation, as a result of which a contradiction arises between the availability of released funds from some entrepreneurs and the need for additional resources for a certain time from others. This contradiction is resolved with the help of credit relations.
Consequently, credit as an economic category - expresses the economic relations between the lender and the borrower that arise in the process of transferring money or material values by some parties to the loan agreement to others on terms of return.
Types of loans:
- carried out only in cash and provided by banks, monetary institutions to business entities. It can be short-term and long-term and can be repaid by a lump sum or by installments;
- This is a loan provided by economic entities to each other in a commodity form, mainly by deferring payment. The average cost of a commercial loan is lower than the average bank interest rate, and when the transaction is legalized, the loan fee is included in the price of the goods;
- - provided by banks through trade organizations to the population when purchasing goods and services with payment by installments;
- provided in the form of long-term loans secured by real estate for the purchase or construction of housing;
- a system of credit relations, in which the state acts as a borrower, and the population is a creditor of funds. It is carried out in the form of issuing bonds, receiving deposits from the population, selling lottery tickets;
- This is a loan in the form of international economic relations, which is provided in a commodity or cash form. Lenders and borrowers are banks, firms, government and organizations of various countries.
Recently, such forms of lending as:
Is a form of lease with the transfer of machinery, equipment, etc. with the subsequent payment of their cost. Leasing transactions are concluded for a period of 1 to 10 years.
- this is the repurchase or resale of someone else's debt or commercial transactions under a power of attorney. The bank buys the company's “accounts receivable” in cash and then collects the debt from the actual buyer to whom the association sold the product or provided the service.
- This is a long-term factoring associated with the sale of debts to the bank, the collection of which will come in 1-5 years.
We will take a closer look at "Consumer Loan" and "Mortgage".
A consumer loan is money that a bank gives to a borrower to purchase goods and services. As a rule, such an opportunity is resorted to when the cost is too high, and at the same time there is little cash.
- to buy home appliances
- tourist voucher
- for treatment in private clinics
- carrying out large-scale renovations in the apartment
Of course, the list of life situations that require taking a bank loan is not limited to this. Every year more and more people turn to redit and actively use them. Of course, this is good for banking organizations. Every year there are more and more such organizations and competition intensifies. Credit organizations are starting to compete with each other and are conducting various loyalty programs to attract clients, which we will talk about in the following articles.
The main disadvantage of consumer loans is the high interest rate.
Especially when it comes to a loan, upon receipt of which you do not need to provide additional security. Such a loan is issued in two accounts, but the overpayment on it will be very significant. In Russia, the rate on consumer loans varies in different institutions from 11.3% to 50% per annum. To get a lower percentage, you will have to try. Nevertheless, a consumer loan is the best option to purchase the desired item or service. It is important that for many people obtaining such a loan from a bank becomes the only way to maintain a habitual lifestyle after losing a job or a breadwinner, to pay for education or urgent treatment.
Pros and cons of loans.
- Purchase of the necessary product or service right now, which is especially important when holding discount promotions in stores.
- Possibility of protection against price increases: sometimes the most profitable step is to make a purchase with a consumer loan now, rather than later, when the price of the product rises significantly.
- The ability to make monthly payments throughout the entire loan term, and not shell out a huge amount now to the detriment of your future needs.
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The presence of a large overpayment.
- In case of an incorrect assessment of their financial capabilities, a consumer loan becomes a real test for the borrower and his family.
- The spontaneity of the purchase, which is realized later.
- The risk of spoiling your credit history in case of delay in consumer loan payments.
Mortgage is a variant of real estate pledge, in which the real estate object remains in the possession and use of the debtor, and the creditor, in case the debtor fails to fulfill his obligation, acquires the right to receive satisfaction through the sale of this property. Like any other pledge, a mortgage is a way of securing the fulfillment of obligations.
The main differences from consumer loans:
- The financial institution provides funds exclusively for the purchase of real estate.
- Registration of a pledge on the property is mandatory.
- The borrower becomes the full owner of the home only after the debt has been fully repaid.
- The purchased property must be appraised by a specialist and subsequently insured. Such costs are borne by the borrower. As a result of such a transaction, the financial institution experiences certain risks.
Pros and cons of mortgages:
What are the advantages of a mortgage?
- Solution of the housing issue. By taking out a loan for the purchase of real estate, you get a rare opportunity to improve your living conditions. This is the main advantage of a mortgage.
- The opportunity to save money. Surprisingly, when registering an apartment on credit, it becomes possible to save some of the funds. This option is suitable for those who fall under special categories of borrowers (young families, military, etc.) - they are provided with benefits in the form of reduced interest rates or subsidies to cover part of the costs. In addition, part of the loan can be paid at the expense of maternity capital or with the help of refunded tax deductions.
What are the cons of a mortgage?
- High price. The key problem with lending in Russia is the high cost of loans. The state encourages financial institutions to constantly lower the cost of mortgages. Its price, indeed, regularly decreases, but we are still far from European loans at a price of 3-4% per annum. So far, according to polls, no more than 2-3% of Russians can afford a mortgage.
- Long term of payments. The mortgage is issued for a long term, which can be up to 50 years. All this time, you need to make payments every month. The size of payments is significant, so many have to give up excesses and constantly save money in order to settle accounts with the bank faster.
- Constant risk of losing your apartment. Almost a fifth of all borrowers have problems with paying off mortgage loans. People buy an apartment when they can afford it, but life changes: no one is insured from illness and loss of earnings. If the bank does not have enough funds to repay the loan, the bank may seize the property for sale and pay off the debt through the court.
- The complexity of the design. A mortgage always implies obtaining a large loan amount, and this service is not available to everyone. To receive money, you need to have sufficient solvency, collect a lot of documents, go through a bank check and wait for a response from the bank for some time. The entire loan procedure can require a lot of time, effort and additional financial costs.
How is a consumer loan repaid?
When issuing a loan, a bank or other financial institution prints out and hands over to the borrower a payment schedule. It is according to this procedure that the client is obliged to deposit funds on account of his debt.
A missed payment can mean a default on loan obligations and lead to the accrual of fines. Therefore, the consumer is obliged to undergo a short instruction on payments and try to adhere to the indicated numbers as much as possible.
How to pay?
Payments on the loan must be treated carefully and responsibly. Better to pay in advance. Lenders rarely make concessions and do not want to enter the position of clients if the delay is admitted without a good reason. Even a minimal amount of debt can incur a penalty or fine. Also, the bank can enter information into the customer's credit history and spoil the credit rating.
Payment can be made at the bank's cash desk, through the terminal, using Internet banking. Many lenders allow the transfer of funds by postal order, through electronic payment systems or communication shops. It is better to find out more detailed information about the methods of payment directly upon signing the contract.
Time of payment
At the time of paperwork, the client should be given a loan repayment schedule. It is necessary to carefully study the provided document and follow the recommendations that are indicated in it. If you have any questions, you need to clarify the nuances with the manager: when and how much should be paid.
What happens if you don't pay on time:
In case of delays, the bank charges a fine and a penalty, which tends to increase. In order to prevent such an unpleasant situation, you should take care of the timely payment of payments. Do not forget that some banking operations are delayed for 2-3 business days. Therefore, a loan delay may arise even due to the client's carelessness.
In the event of unforeseen financial difficulties, the borrower is obliged to warn the bank and learn about the possibility of postponing or restructuring the debt. This way you can avoid penalties.
Failure to meet credit obligations can ruin your credit history. With a low credit rating, many banks simply will not give a loan, so you will have to borrow from MFIs at very high interest rates.
Early repayment:
Early repayment of loans is permitted at the legislative level. Therefore, the bank cannot prohibit the repayment of the debt ahead of time. To repay the loan ahead of schedule, the client needs to write an application and provide it to the lender. It is better to do this one month before the expected date of depositing funds.
In this case, the interest rate is paid for the actual period of use of the money. In rare cases, banks will charge a commission. In this case, the lender cannot increase the rate.
A loan is an effective and convenient tool for paying for purchases and services. Lending allows you not to postpone important acquisitions until later, but to enjoy new things here and now. You can safely plan new acquisitions on credit, taking into account your desires and financial capabilities! The main thing is that this loan is useful for you and your loved ones.
Next, we will analyze useful and useless loans. How not to lose and even earn with the help of banks.
