What are the characteristics of a loan?

2022-05-16 07:04:02
A long-term or short-term loan requires a lot of thought from the person who wants to borrow.  Engaging in debt should be a well thought out act.  Understanding then the criteria or the stakes of a loan can contribute to reinforce your choice.  The criteria are different from one establishment to another.  Certainly, any serious establishment must first exhibit these criteria to these customers.  This allows the lender to know the cost of the loan according to a duration and to see if it benefits him or not.
 These criteria must be well negotiated between the financial institution and its client before any agreement to sign the contract.

The type of credit

Most institutions distinguish between credits.  It makes it possible to assign different criteria favorable to each type of credit.

The amount requested

First of all, you must carefully study your needs.  You have to evaluate them to get an idea of the amount needed for your project.

The interest rate

The interest rate is one of the most important elements before applying for a loan.  It allows you to know the cost of interest, that is to say the amount you should pay in addition to the sum lent.  By the way, a credit is a service allocated to an establishment, so you have to pay.  It is the interest rate that allows you to know the amount to be paid.  Expressed as a percentage, it is generally given over a period of 12 months (1 year).  From this type of rate, we deduct another type of rate:
  • The periodic rate (this rate gives over a given period.),
  • The monthly rate (rate for 1 month),
  • The quarterly rate (rate for 3 months)
The repayment of a debt is influenced by the type of rate.  In this case, there are two types of rates.

Variable rate

The monthly payments will vary during the repayment period.  They will be recalculated automatically will be internal indices established by your financial institution (lender).  To follow the evolution of your debt in this case, you must know this different index.

 A fixed rate

This is the most popular rate.  It allows you to follow your debt well.  The monthly payments are unchanged throughout the repayment period.

The monthly payment

The monthly payment represents the amount you owe per month in relation to your credit.  Generally if the monthly payment is high, the repayment period is reduced.  If the monthly payment is low, the repayment period is long.  It is fixed if the rate is fixed and variable if the rate is variable.
 This is the indicator that should be checked directly with the interest rate.  This allows you to check your ability to repay the credit.

The duration of the repayment

All credit is established over a given period.  The repayment term is the expected time to pay the total amount of the credit (capital + various fees).  The duration is generally chosen by the borrower according to his ability to repay the debt.  It should be noted that the longer the duration, the cost of credit will be higher.

The debt ratio

Most financial institutions ask to know the debt ratio of their client.  It is an indicator that shows your ability to bear your debt.  To calculate your debt ratio, you must report all your monthly charges (all debts, including other monthly charges), your monthly income.  The normal debt ratio must be below 33%.  Beyond this percentage, the establishment may be more wary of freely offering you a loan.

Credit charges

Most credits usually have different fees.  Fees can be separate from the monthly payment or included in the monthly payment calculation.  Possibly, there is no free credit.  Even if the fees are not transparent, you have to be sure that it is integrated directly into the calculation of the interest rate.  There are different types of credit charges:
  • Application fee,
  • warranty costs,
  • account management fees,
These various costs are often related to the administration of your establishment and constitute efforts for the construction of your file and the guarantee of your loan.

The APRC

The APRC is the indicator that allows a borrower to quickly assess whether a loan is advantageous or not.  It allows you to compare loans.  It is an essential element.  In its effectiveness, it is made up of: monthly payments, the interest rate, credit costs, the duration of the repayment, the total amount to be repaid, the borrower insurance
 The Taeg only takes into account all the costs that are necessary for obtaining credit.  Expenses that are not necessary are therefore not taken into account such as: penalty fees, notary fees

Borrower insurance

For each loan requested, the financial institution may ask you to take out insurance.  This operation is optional, but the establishment of the repayment of your debt reassures you, I will be more able to pay your debt.  It is possible to choose another third-party insurer than the one offered by your establishment.  This process called delegation of insurance makes it possible to obtain cheaper insurance
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