What are loans and what can you buy with them?

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

You can buy anything with borrowed money. But the terms of return for different types of loans will differ.

What are loans

Targeted loans

The bank issues funds for specific needs. In most cases, you do not even see this money: the credit institution immediately transfers it to the seller. When it comes to large loans, the bank may ask for collateral and down payment.

Mortgage credit lending

This type of loan is often referred to simply as a mortgage, but this is not entirely true. A mortgage is a form of collateral in which the debtor owns and uses the property, but the creditor can sell it if the obligations under the loan agreement are violated. One of the most common forms of mortgage lending is buying a real estate object on credit, which will be the collateral.

Mortgages are characterized by a long loan term and a relatively low interest rate (the weighted average rate on mortgage loans in July 2018 was 9.48%, for other loans, except for car loans, for a period of one to three years - 15.39%).

With the help of mortgage lending, you can purchase:

• an apartment in a new building or in the secondary market;
• House;
• land plot;
• dacha;
• garage;
• company.

And the list of objects for a mortgage is not limited to this. For example, you can take out a loan to build a house by mortgaging a land plot or a lease right to it.

When buying a home on credit, it is indicated in the State Register of Rights to Real Estate that the object is pledged. You can remove the encumbrance after the loan is repaid. Prior to that, the owner of the property cannot enter into transactions with it without the knowledge of the bank.

Car loan

This is a special loan for the purchase of a vehicle, in which the car remains pledged to the bank. And so that the debtor does not have the temptation to sell the car, the title is kept in a financial institution. You can pick up the document when the loan is fully repaid.

Dealerships often offer car loan recipients the most attractive conditions for buying a car.

True, they are most often compensated by the need for a CASCO with a maximum set of risks for the entire loan period.

Thanks to insurance and collateral, the bank can offer a not very high interest rate. In June, on average, it was 14, 83% per annum when buying a new car.

Loan for education

The purpose of the loan is clear from the name: the money goes to pay for tuition, and usually we are talking about universities. However, credit conditions can vary dramatically.

Some banks give loans to students. In this case, while studying, the debtor pays only interest for the use of the money; he will begin to repay the principal debt after receiving the diploma.

Some financial institutions choose not to take risks and set a lower age limit for the borrower. For example, it could be 21 years old. In this case, it is assumed that the applicant's parents will take the loan, or he himself is already firmly on his feet, since yesterday's school graduate does not fit the conditions.

Targeted consumer loans

This group of loans includes loans for the purchase of household appliances, travel vouchers, construction operations, and medical services. If you buy a fur coat on credit in a store with fur products, then it also fits into this paragraph.

Usually, the amounts are small and no deposit is required. The conditions largely depend on what the store has agreed with the bank about.

Installment in this case is also a type of targeted loan. It's just that the merchant sells the goods to the bank cheaper than you, and the difference then goes to the income of the financial institution in the form of interest.

Refinancing

Refinancing a loan is getting a new loan from another bank on more favorable terms to repay the old one. Essentially, a financial institution is poaching a customer from a competitor. It repays your loan to another bank ahead of schedule, and then you pay the new lender both the principal and the updated interest. You get a lower rate, the financial institution is your money.

Inappropriate loans

Inappropriate consumer loans

You just take the amount you need from the bank and spend it at your discretion. But since the bank does not receive collateral and cannot control your spending, it insures its risks with higher interest rates on such loans.

There are non-targeted loans that are disguised as targeted. You request money for specific expenses, and the bank takes this into account when approving the loan. However, in fact, the institution cannot control you in any way. For example, businessman Fyodor Ovchinnikov opened a bookstore, taking money from the bank for repairs.

Microloans

Small amounts that are issued to the client with almost no verification of his conscientiousness and with a minimum of documents. But the interest rate on these conditions is also offered extremely high. Because of this, earlier, in case of non-payment, the debt of a person who applied to a microfinance organization could grow tenfold in a year.

Now, according to the law, the maximum overpayment on microloans cannot exceed the amount of debt by more than three times. But this does not prevent institutions from charging interest and fines.

Usually, such loans are used by people who are unable to get a bank loan on acceptable terms.

Credit cards

You can borrow the limited amount from the bank and repay it whenever possible. There is a grace period for cards, when interest for using money from a credit card is not charged.

How to use the card so as not to get into debt, Lifehacker wrote. If you follow the rules, you can do without overpayments.

Which loan to choose

To begin with, you should decide whether you need a loan at all, advises Sergey Leonidov, CEO of the financial aggregator Sravn.ru. He does not recommend taking loans of two types:

1. In stores for the purchase of goods - furniture, electronics, and so on. It will be easier and cheaper to save up in order to avoid a very large overpayment for the goods.
2. Payday loans from microfinance companies - because of the huge rates.

Other forms of loans have their pros and cons. For example, mortgages and car loans make sense when you need a really large amount for a long enough period. For such loans, you can apply for benefits from the state, a developer or a car dealer. But you will not be able to dispose of the property, so if you need a relatively small amount, then you should look at the conditions for non-targeted and unsecured loans.

An important point for any loan: you need to carefully deal with all the conditions for payments.

Sergey Leonidov General Director of the financial aggregator "Sravn.ru"

If you did something wrong and cannot pay off the debt, you definitely should not take another loan to pay off the first one, and also a credit card and a new phone on credit before payday. You can consider refinancing one or more loans at a better rate, but not refinancing on any terms, driving yourself even deeper into bondage.

Study the market carefully. It is not necessary to bypass all banks to find out the conditions; you can see them on the websites of financial institutions or in special aggregators.