How bank loans work

Today, opting for a bank loan is increasingly common among citizens, as this has proven to be the most effective method to end liquidity problems. Loans are banking operations, through which a financial entity agrees to provide a certain amount of money to an applicant. This in return, commits to the payment of interest with the return of the same, being received in the form of periodic installments. In general, the amount of money requested in a personal or bank loan is intended for the purchase of a specific good or service.

As expected, prior to the granting of a loan, the applicant must meet a series of requirements, since it depends on this that the financial entity agrees to grant the amount demanded. In addition, prior to establishing the signature of the loan, it is important to know that punctuality represents a fundamental element, since being strict in payments, we will avoid complications that can trigger the seizure of assets.

If in your case, you are interested in applying for a bank loan but you are still not sure how they work, then we will explain what they consist of, what type of credits there are and the operating structure they use, as well as other topics of interest, that you They will help make an objective decision.


Types of bank loans

money loans

When we talk about types of bank loans, it is possible to identify a wide list, among which personal loans, consumer loans, study loans, and the best known, mortgage loans.

As for online personal loans, it is possible to say that this type of credit tool is used to solve specific liquidity problems. Generally, they are approved for small amounts, which must be returned in a short period of time. A characteristic of this type of credits is that they are quickly approved and the requirements are simple and easy to obtain. Also due to its short term, its interest rates are quite accessible.

On the other hand, consumer loans are financial products used to manage the acquisition of an asset or durable consumer, such as a car, certain machinery, an appliance or a motorcycle. Another financial product offered by banks, are the study loans, which are differentiated when used exclusively to cover professional training expenses. These credits have lower interests than conventional loans, since they are aimed at students who wish to finance university tuition, postgraduate studies or trips abroad.

Similarly, mortgage loans are also presented as a type of bank credit. These are characterized by requiring the applicant to submit comprehensive guarantees that serve as collateral to the financial entity. This type of tool is used to manage the purchase of a home, and the development of investment businesses, as is the case of entrepreneurship.


What is the operating structure of a bank loan


The operating structure of a bank loan is simple. When requesting a loan, the first thing that the financial entity performs is the evaluation of the applicant’s ability to pay. This with the intention of knowing, if the person has enough financial guarantee to face the payment of the corresponding fees. Since the bank’s profit is in the interest it receives each time the debtor amortizes the payment of a fee.

Once the payment capacity of the applicant has been verified, the financial entity designs the payment structure, which will aim to guarantee the total return of the borrowed capital along with the obligations contracted with the entity, such as interest, commissions or some associated expense. Generally the form of payment used is the amortization of periodic installments. Among the most common fees are, the single fee, the variable fees and the constant fees. The former are used to manage the payment of short-term loans, since the settlement of interest such as the return of capital occurs at maturity by means of a single payment. The second, the variable fees, are amortized by means of variable payments in geometric or arithmetic progression. And finally, the constant quotas that the well-known French system uses for its calculation, in which capital is increasingly amortized, while interest decreases period by period.


Requirements and repayment terms for bank loans

Requirements and repayment terms for bank loans

When applying for a bank loan, each financial entity has a list of requirements, which must be fully fulfilled by the applicant, provided that he wishes to receive a positive response from the financial entity. Among the requirements demanded by the entity include, have the valid ID, submit the income tax of natural persons or personal income tax, income statement, VAT declaration, proforma invoice or budget that shows the costs of the asset or service to acquire or even the history of other loans.

As for the repayment term, this is different for each type of credit, since it will depend on the useful life of the good that you wish to acquire. In the case of personal loans, the repayment period is generally equal to or less than 60 days.


Key elements to assess before applying for a bank loan

Key elements to assess before applying for a bank loan

When a person decides to apply for a bank loan, it is very important that he be clear about the responsibilities he assumes once he has signed the contract, to avoid future inconvenience. The first thing that the applicant must be clear about is that he must comply with the established payments in a timely and responsible manner, since a small delay can become a default situation.

An important point is to consider the payment capacity that is possessed, since it will depend on this that the applicant can fulfill the obligations established by the creditor.

Another aspect that is essential to consider is the credibility of the financial institution. A recommendation that can be of great help is always to choose recognized entities that offer security and confidence to the applicant. This will allow for optimal conditions that respect established contracting parameters, avoiding unfair changes that jeopardize the legality of the contract. To select the best entity, it is best to use the service of credit comparators, this will allow you to evaluate the options available, and choose the one that best suits the needs of the interested party.


How much will the loan cost?

Similarly, an element of vital importance is to know in depth the type of interest that will be applied. This will be of great help when calculating exactly how much we must pay for the requested credit. Also, when applying for a loan, special attention should also be given to the APR or equivalent annual rate. The APR, allows to know all the factors that will be considered when making the calculation of the fees that must be paid. In this way, you will not only know the type and nominal interest value, but also the value of all commissions that will be charged.


Guarantee, a concept of vital importance when applying for a bank loan

How much will the loan cost?

When making a loan application, it is necessary to be clear about a word, and that is guarantee. Because this concept defines the consequences that the commitment may have to assume and not fulfill. When a person makes the decision to apply for a bank loan, they should know that each type of credit requires different guarantees. In this way, the guarantees of a personal loan will never be the same as those of a mortgage loan.

When defining the word guarantee, it is important to know that this constitutes the support that will allow the financial institution to have security, that the debtor will make the return of the money received and the cancellation of the corresponding interests.

Generally, when it comes to personal loans, the request for extensive guarantees is rarely made, since these are granted for low amounts with short repayment terms. However, for mortgage loans, the guarantees are usually quite demanding, to the point that the applicant must present the good he acquires as a guarantee of payment. This implies a greater obligation for the applicant, since not only the acquired good will be guaranteed, but also all present and future goods, which he may acquire.


Advantages and disadvantages of personal loans

personal loans

The advantages offered by a bank loan are many, since in addition to allowing the acquisition of a good to be financed, it makes it possible to solve specific cash needs easily, quickly and easily. Which allows, to solve financial emergencies, without jeopardizing the tranquility and economic stability of the applicant. Likewise, if the interested party chooses a formal and recognized supplier, he will have the assurance that the contract will be established clearly, guaranteeing his rights, but also his obligations. As for the disadvantages, it must be said that in the event of a default situation, the debtor may face certain legal problems, which may lead to the execution of the mortgage.

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