In life, various needs and circumstances arise, associated with greater expenses. These costs sometimes exceed our budget and capabilities. Then we can use additional financing in the form of a loan. But which one to choose if there are so many types of bank loan? We write about it below.
Bank loan – what is that?
Let’s start by explaining what a loan is before we move on to bank loan types. The loan is an agreement concluded in writing between the consumer (or entrepreneur) and the bank. In such an agreement, the bank, under certain conditions, indicates that it will make available a specific amount of cash, for a specific purpose and for a specific period of time. Anyone who takes out a loan-borrower will be required to allocate funds to the indicated purpose and to return the amount due to the bank along with any additional costs (commissions, interest, service). To sum up the concept of a bank loan, one should take into account a set of elements that are its characteristic features. Namely, it is the interest rate, timeliness and maneuverability – in a way that funds must be returned to the bank within a specified period, under certain conditions.
Who can get a bank loan?
Anyone who is over 18 and has a positive credit history can apply for a bank loan. What does it mean? Regularly pay bills that we receive every month. You should not borrow more than necessary, and do not repay some obligations with other, newly contracted ones. This attitude can lead to a spiral of debt. And this is already a serious problem, which is much harder to deal with and certainly closes the path to receiving a loan. Similarly with loans for entrepreneurs. It’s just that they need to take more care of the company’s condition to be a valuable and reliable partner for talks about loans for the bank. Before we sit down to the conclusion, we will have to decide which type of bank loan is the best, considering the goal we want to achieve with it.
Types of loans
When we properly prepare the goal for which we want to allocate cash, it will be easier for us to choose among the types of bank loan the one that will best meet our expectations. Remember that it’s best to get some information yourself, because a bank employee does not have to tell us in detail about each type of loan. There are many divisions, but we will try to list the most important ones that we meet most often:
1. Breakdown into loans:
- consumer – for the borrower’s current needs, e.g. purchase of equipment
- Investment – intended for investments that are to bring the borrower’s profit
- Mortgage – for the purchase of real estate or construction of a house
- consolidation – to facilitate repayment of liabilities, they are combined into one loan on better terms for the borrower
- with a credit card – a loan connected to a bank account and a specific limit granted by the bank
2. Breakdown into loans, depending on the repayment period:
- Long-term – loan repayment is determined for a period of over 3 years
- Medium-term – loan repayment within 1 to 3 years
- Short-term – loan repayment up to 1 year
There are other divisions, including for loans in dollars or in foreign currencies, if the borrower applies for such a reason.
What should you complete to get a loan?
The basic step will be to submit an application for the appropriate type of bank loan that we want to receive. We can do it at the stationary branch of the selected bank or in electronic form (almost in every bank). In the application, we will have to complete a lot of information, thanks to which the bank will be able to start processing the application in order to be able to finally issue a decision on granting or refusing a loan. The basic information we need to prepare will include our personal data; do we have a dependent family; what income row appears on our account every month; what are our permanent commitments (i.e. every month); what financing we apply for (type and amount of the loan), and whether we already have any charges in the form of a loan, loan or maintenance. All this will affect the decision to grant the loan.
What elements should be included in the loan agreement?
Regardless of the type of bank loan you choose, we will always be required to sign a contract with the bank. It’s worth knowing what elements will be in it.
- Place of conclusion of the contract together with date and details of the parties
- Loan amount and purpose as well as commission, interest rate and possible changes
- Loan repayment rules, term and security
- What are the launch conditions, purpose and consequences of violating the loan agreement
- Information on how to withdraw from contracts