Credit terms
| Credit terms |
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The credit terms refer to the standards or terms offered by the seller to the buyer, which control the monthly and total amount of the loan, the maximum repayment period, the discount for cash or advance payment and the amount of the penalty for late payment.
The first condition to be met in order to receive a cash loan is to have adequate creditworthiness. Creditworthiness is the ability to repay a loan (principal and interest) within the period specified in the contract.
The second factor taken into account by the bank is your creditworthiness, that is, the history of the repayment of your liabilities. The bank will check whether you have been paying installments on time and what is the total sum of your debts [1]
Types of loans
- Consumer loan - contracted to finance specific borrower's needs,
- Mortgage loan - granted for the purpose of purchasing real estate or constructing a construction investment,
- Investment loan - is allocated to the implementation of projects increasing the borrower's assets,
- Credit card - is directly related to the bank account and the credit limit granted by the bank,
- A consolidation loan - especially useful for people with several loans and not having debt [2]
Documents needed to obtain a loan
To receive a cash loan, you have to complete the necessary documents. However, you do not need to be afraid of numerous formalities. In the case of a cash loan, the list of necessary documents is short and consists of two items:
- document confirming your identity - based on it, your data, age and nationality will be verified. You will need to enter data in accordance with those in the document in the credit form.
- income certificate - information about the amount of income you earn (along with data provided in the loan application) will be the basis for assessing your creditworthiness. You will receive an income certificate from your employer.
If you are a pensioner you should confirm this status by presenting the last episode of your pension. The bank may also ask you for additional income confirmation, for example, statements from your bank account for the last three months. You will show in this way that you are financially stable and receive regular income. It is also possible to get a loan for a statement - in this case, you declare how much you earn.
By signing a document confirming obtaining a loan, you must read it carefully. In case of security, you can also ask a credit advisor for details such as:
- Interest rate
- The amount of commission
- The amount of the loan installment
- Is it possible to pay off the loan earlier and how much does it cost?
- What is the total cost of the loan? [3]
Forms of loan security
1. Personal:
- surety - the third party undertakes to repay the loan with interest if the borrower does not repay it on time,
- blank promissory note - it shapes the additional path of enforcing the bank's claims. A promissory note is prepared, according to which the bank is authorized to complete a promissory note in the event of cessation of repayment,
- bill of exchange (awal),
- Bank guarantee,
- credit insurance,
- transfer of receivables (assignment),
- joining the debt;
2. Kind:
- pledge on things and rights,
- blocking of funds on a bank account - determined in writing excluding the appeal,
- deposit - it requires a written contract, it is made on a separate bank account,
- transfer to security,
- mortgage - securing the repayment of the loan on the real estate for which the land and mortgage register was established. It is assigned to the real estate, regardless of who owns it. It can not be established on a real estate that the debtor has only for use. [4]
How much do you have to earn to get a loan?
No matter how much you earn, you can apply for a loan. Each bank independently sets the terms of granting loans, and the ability to repay the obligation by the client is assessed individually. The most important criterion you must meet is the appropriate creditworthiness.
A person who has small incomes, but does not have any obligations and has so far repaid all due amounts on time has a better chance of getting a loan than a person earning more, but defaulting on repayment of other installments.
Credit without earnings certificates
Banks are increasingly meeting the expectations of clients and granting loans also to persons employed under a contract of mandate or work.
Another benefit for people with low incomes is a loan without earnings certificates. Although the amount of such an obligation is lower, it also requires fewer formalities [5]
References
- Becchetti L., Conzo P. (2011)Enhancing capabilities through credit access: Creditworthiness as a signal of trustworthiness under asymmetric information „Journal of Public Economics” 03079.
- Brooks S., Mosley L. (2012) Categories, Creditworthiness and Contagion: How Investors’ Shortcuts Affect Sovereign Debt Markets „Annual Meetings of the American Political Science Association” No. 2.
- Jaggi Ch. , Yadavalli V., Sharma A., Tiwari S. (2016) A Fuzzy EOQ Model with Allowable Shortage under Different Trade Credit Terms „An International Journal” No. 2, 785-805.
- Nixon K., Nyamuyonjo D. (2012) Credit Terms, Access to Finance and Financial Performance of Smes in Kampala „Makerere University” 2008/HD10/14119U.
- Vazquez F., Tabak B, Souto M. (2011) A macro stress test model of credit risk for the Brazilian banking sector "Journal of Financial Stability" No. 8.
Footnotes
Author: Agata Janusz
