How to request a loan
December 27, 2018
Asking for a loan is a very common way of dealing with certain expenses that exceed our ability to pay- look at this web-site. Buy a car, renovate the house, organize a wedding, pay for studies … there are many times when our savings fall short to pay these expenses or, directly, we prefer to request the money to our bank to go back little by little, without spending at once that mattress that we have been saving over the years.
Anyway, when going to a bank we should know exactly what amount of money we need and what our ability to pay, as they are two important factors that the bank will take into account to grant or not the loan.
The keys to a personal loan
To choose the loan that best suits our needs we must pay attention to three main keys:
The capital that we ask
It is the total of the money that is requested. Most banks offer loans starting at € 1,000 or € 1,500, while the limit on financing depends, to a large extent, on the profile of the client who requests it.
The interest we have to pay
It is the price of the money that they lend us, what the bank charges for leaving us a certain amount of money and running the risk of default. It is represented in a percentage to which they refer as TAE and TIN. Let’s quickly see these two concepts:
- The acronym TIN refers to the Nominal Interest Rate, the price that the bank charges for lending us money. It is calculated based on a percentage of the capital lent to the client. This percentage is applied to the outstanding capital at any time. Within the TIN, the possible commissions of the loan are not included.
- The APR is the Annual Equivalent Rate and, like the TIN, represents what the loan costs but this time including the commissions and other expenses that may be associated with the loan.
Therefore, when analyzing the interest on the loan and comparing one bank to another, the APR is the data on which we should set.
The amortization period
The third most important factor when applying for a loan is the time in which we will repay it, the so-called amortization period. The most normal is that this term goes from two to ten years, although these periods may vary from one bank to another.
It is important to choose carefully when we will repay the loan because, although a longer repayment term will make the monthly installments smaller, in the long run, it will also lead us to pay more interest. On the contrary, a shorter repayment period will increase that monthly fee but will make our loan cheaper.
What is a bank set to grant us a loan?
When a bank lends us money, it is relying on our ability to repay the amount borrowed, as well as the interests that have previously been established. That is, the bank runs a risk and needs to make sure that as customers, we will be able to return the money received. Therefore, the main criterion for analyzing any loan request is our monthly income.
The most important thing is to have a regular source of income and that these are enough to allow us to pay monthly fees. That is why the debt ratio or ratio is used, a percentage that ranges between 35% and 40% beyond which it would not be safe to lend a given amount of money to a client. Or what is the same, if the monthly payment we have to pay represents more than that 35% or 40% of our monthly salary, the bank will not consider insurance to offer us a loan in those conditions.
Given this situation, we would have to modify some of the aforementioned parameters to get our financing: either request less money, try to find a bank that asks us for a lower interest or accept a longer amortization period.
It is true that although our income is the determining factor in the granting of a loan, they are not the only point that banks take into account to study our application. The number of owners requesting the loan is also valued since two payrolls (or demonstrable sources of income) offer a greater guarantee of payment than a single one.
Another key that can tip the balance in our favor is our history as customers and payers. If throughout our lives we have been responding punctually to all payments of other loans or credits, the bank will tend to trust us more. That said, it goes without saying that access to any bank loan will be vetoed if we have fallen on a list of defaulters.
Finally, the availability of goods on our behalfs, such as a house or a vehicle, is always a backup for our request.
The most common commissions on loans
Regardless of the interest, we pay for our loan, the majority of financing products offered by banks have some associated commission. The most common are the following:
- Opening commission: it is a small percentage of the total loan that is paid at the beginning.
- Commission of anticipated total or partial cancellation: a percentage of the outstanding capital is paid back at the time of cancellation of the loan.
When we are going to apply for a loan, we must know exactly what our limit of indebtedness is, the maximum monthly payment that we can afford to pay without going through economic ‘straits’. Based on this data we can begin to explore different options and, as in any other decision, it is important to compare the different alternatives they offer us.