It is worth knowing what it means to ask for a loan and what are the main requirements to access it
Asking for a loan is a very common way to face certain expenses that exceed our ability to pay. Buying a car, reforming the house, organizing a wedding, costing your studies … there are many occasions when our savings are short to pay for these expenses or, directly, we prefer to apply for money to our bank to return it slowly, without spending In one go that mattress we have been saving over the years.
Either way, when it comes to going to a bank, we should know exactly how much money we need and what our payment capacity is since they are two important factors that the bank will take into account to grant the loan or not.
The keys to a personal loan
To choose this loan that best suits our needs, we must pay attention to three main keys:
The capital we ask for
It is the total of the money that is requested. Most banks offer loans starting at € 1,000 or € 1,500, while the financing limit depends, to a great extent, on the profile of the client that requests it.
The interest we have to pay
It is the price of the money that they provide us, what the bank charges for leaving us a certain amount of money and run the risk of non-payment. It is represented in a percentage to which they refer as TAE and TIN. Let’s look at these two concepts quickly:
- The acronym TIN (TXN) refers to the nominal interest rate, the price that the bank charges for lending us money. It is calculated according to a percentage of the capital loaned to the client. This percentage applies to the pending capital repayment at any time. Within the TIN they do not include the possible commissions that the loan has.
- The APR is the equivalent annual rate and, like the TIN, represents the cost of the loan but this time including the commissions and other expenses that may be associated with the granting of the loan.
Therefore, when analyzing loan interest and comparing between a bank and another, the TAE is the data that we should fix.
The amortization period
The third most important factor when applying for a loan is the time we will return it, the so-called amortization period. The most normal thing is that this period goes from two to ten years, although these periods may vary from one bank to another.
It is important to choose carefully at what time we will repay the loan since, although a longer repayment term will make the monthly payments smaller, over time, it will also lead us to pay more interest. Instead, a shorter repayment term will increase that monthly fee but will make our loan cheaper.
What sets a bank to grant us a loan?
When a bank lends money to us, it is relying on our ability to return the loaned amount, as well as the interest rates that have previously been established. That is, the bank runs a risk and needs to make sure that as clients, we will be able to return the money received. Therefore, the main criterion for analyzing any loan application 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 installments. Therefore, the coefficient or ratio of borrowing is used, a percentage that ranges between 35% and 40% beyond this would not be safe to provide a certain amount of money to a client. Or what is the same, if the monthly fee that we have to pay represents more than 35% or 40% of our monthly salary, the bank will not consider it safe to offer a loan in these conditions.
Given this situation, we would have to modify some of the aforementioned parameters to obtain our financing: either requesting less money, trying to find a bank that requests us a lower interest rate or accept a greater amortization period.
If it is true that although our revenues are the determining factor in the granting of a loan, they are not the only point that banks consider to study our request. The number of the owners who request 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 decant the balance in our favor is our history as clients and payers. If throughout our life we have been responding in a timely manner to all payments of other loans or credits, the bank will tend to trust more in us. Having said that, it is not necessary to point out that access to any bank loan will be vetoed if we fall into a list of defaulters.
Finally, having goods in our names, such as a house or a vehicle, always means support for our request.
The most common commissions on loans
Apart from the interest we pay for our loan, most of the 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 of the loan that is paid at the beginning.
- Total or partial early cancellation commission: a percentage of the outstanding capital is paid when returning the loan.
When we are requesting a loan, we must know exactly what our debt limit is, the maximum monthly installment that we can afford to pay without passing economic ‘straits’. Based on this data we can start exploring different options and, as with any other decision, it is important to compare the different alternatives that we offer.