Is it impossible for you to know the different types of loans? Here is the basic step by step guide to never make a wrong decision again
There are probably very few fortunate people on Earth who have never needed a loan in life. In almost any situation, we may need financial help when we cannot raise enough money to achieve our goals or solve our problems. Loans come in handy, which is a bridging solution.
Since there is a good chance that you will have to use this financial tool from time to time, we will help you get on the path to making the right decision.
We summarize all the basic and important information
In this article, we summarize all the basic and important information you need to know about your bank loans. What is a loan purpose? How to apply? How much can we get? How can we choose the best loan for our purpose? What happens if we can’t pay? Here are just a few examples to answer as we read on.
First of all, let us clarify the most basic question: what is the often hated, but sometimes life-saving loan?
In the case of credit, we are talking about a financial transaction in which the lender, which is usually a bank, undertakes to give money to the debtor, in our case to us. In return, the debtor promises to repay the loan with interest.
Suppose you go to kid’s school, but you just don’t have the money to buy your school supplies. That’s why we’re asking for a loan from a bank: we need $ 100,000 to buy booklets, pens and books.
The bank gives it at 10 percent interest, so we give back 100 000 forints and 10 percent, 10 thousand forints, a total of 110 000 forints during the maturity – repayment period. The parties shall agree on this. This allows the debtor to raise money to achieve his goals and the lender to charge interest on the loan, thus earning money on the loan.
Which loan for what purpose? Free and special purpose loans
It is not difficult to decide what we want to borrow, because everyone has a concrete idea of why they need a loan. This is called a credit target , which can be used to group credit products available today. The simplest is to distinguish between two types:
- Loans for free use
- 2. and targeted loan
In the case of free use loans, the borrowed amount can be used for anything . Want to buy a TV or a fridge but don’t have enough money? Are we getting ready for our dream wedding, but too much? Would we buy solar panels to reduce our overhead bill? That’s where the free-to-use personal loan was invented.
We do not need to tell you what we are spending money on and no one is checking to see if it has actually been used for its original purpose. So the free-to-use loan can be spent on technical items, home improvement, loan redemption, car purchase, vacation, medical intervention, whatever we need. In most cases, free-to-use personal loans or free-to-use mortgages can be of help if you want to use your bank money without limits.
The bank also needs security: what is it for and what can the loan cover?
We can also classify loans by collateral based on the amount of assets that need to be included in the loan agreement.
A loan security is real estate or movable property that the lender requests from the debtor as security if he does not consider the repayment of the loan guaranteed.
Typically, a home or car is included in a loan agreement, but it can be any property of greater value, such as art assets or securities. It is often the case that the apartment or car you choose to buy will be the object of coverage itself.
Let’s face it, with a 10 to 20 year loan, it’s not the bank, but we don’t even foresee how our life will turn out. The bank cannot risk losing money in the event of bankruptcy, lack of work, or worse because it would go bankrupt. That’s why you’re looking for a large, value-for-money asset that you can make even if you crash.