Getting a loan is a very serious step – before you make your final decision, think about what financial product you really need? Use the help of our guide and make this difficult choice easier. What should you know about credit and loans? What are their key benefits and the differences that separate them?
What characterizes a loan?
A loan is a financial product provided only by a bank – to get it, you must go through a specially designed verification process in which a financial advisor assesses your creditworthiness. If you receive a positive decision, it means that you are able to pay monthly installments regularly according to the agreed schedule. The amount of credit granted depends on the financial capacity of the potential borrower – if you applied for $ 15,000 and you can only afford 10,000 – this is the offer you will get from the bank.
The basic loan costs include:
- Interest – is included in the annual interest rate, which nominally cannot be higher than four times the value of the Lombard rate.
- Commission – included in the so-called additional costs, and its amount depends on the internal arrangements of the particular bank where you take out the loan.
- Credit insurance – in this way the bank protects itself against borrowers who at some point stop paying installments. There is insurance against death, disability, inability to work or loss of employment
Banks require collateral for the loan – depending on the type of offer, it takes different forms – it can be a declaration of voluntary submission to bailiff enforcement, an obligation to take out insurance, or an application for a gir.
APRC, i.e. the actual annual loan rate
APRC, expressed as a percentage, is a comparison of the total cost of the loan and its amount, which the bank’s customer ultimately allocates to achieve the chosen goal. What is included in the actual annual interest rate? Its components are regulated by the Consumer Credit Act – its content lists all costs taken into account when determining the amount of this parameter.
Method of repayment of loan installments
How can you settle your liability at the bank? You repay the loan in decreasing or equal installments – the first ones get lower with time, and the second ones do not change throughout the entire period of paying off the debt.
Documents necessary to take out a loan
If you want to apply for a loan, the bank will ask you to provide proof of:
- Your identity – it’s an ID card,
- the impact of monthly revenues on the bank account, i.e. a certificate of employment and the amount of salary,
- receiving regular benefits from ZUS – when you are a pensioner.
What is the characteristic of the loan?
Loans are granted to both banks and loan companies. The first institution limits its offer to financial products repaid in tranches. The second offers installment loans and popular payday loans (online and available at stationary outlets). What makes a non-bank loan different? You apply for it without leaving your home – 100 percent online. Your application goes through a verification process – however it is not as detailed and complicated as the loan application procedure. Once the loan application has been approved, the funds will go to your bank account.
The basic costs of installment loans or payday loans include:
- Capital – amount borrowed.
- Additional costs – they differ depending on the loan agreement – among others commission, preparation fee, insurance.
Loan repayment method
The methods of paying back the installment loan and payday loans are different – how exactly do they differ? You pay the installment loan as the name implies in the installments agreed earlier, while the payday loan must be repaid in full on the date specified in the contract.
Documents needed to take a non-bank loan
To take out an installment loan or payday loan, usually only an identity card is enough, so formalities are kept to a minimum. However, some loan companies also require written confirmation of earnings from their clients.
What to take: a credit or a loan?
Before you finally decide on the right financial product, learn about the most important differences between a loan and an installment loan offered by a loan company.
- Taking a loan is a more complicated procedure than taking an installment loan or payday loan.
- Banks usually have higher requirements compared to loan companies – you need more documents or certificates to get a loan.
- The amount you borrow is usually higher than the installment loan – if you need a lot of cash, it’s better to get a debt from the bank.
- Banks require adequate credit collateral from their clients – there is no need for installment loans and payday loans.
- The loan is granted only by the bank, while you can apply for an installment loan both in the bank and in the non-bank company.
To sum up, the answer to the question “What to take: credit or loan?” Is – it depends. From your individual needs, credit standing and many other variables. We don’t want to suggest any solution to you. We hope that the information provided above will help you make the right decision. If you want to know more about the various financial solutions proposed by banks and non-bank institutions, read our blog regularly. We will try to answer all your questions!