All about credits

What is a loan

A loan is money you borrow from a bank or another lender for a set period. You agree to repay the amount received — in instalments or all at once — and to pay the interest and other costs stated in the contract. There are a great many types of loans, and each has its own rules for how it is arranged and repaid.

How a loan is repaid

Most loans are repaid in monthly instalments. Each payment usually consists of two parts: repayment of the principal and interest. How often and how much you pay is shown in the repayment schedule attached to the contract.

Some lenders offer a principal repayment holiday: for an agreed period you pay only interest and fees, and start repaying the debt itself later. This can help if paying the full amount is difficult now but will become easier in the near future. But bear in mind that a repayment holiday does not save you money: the debt does not decrease during this time, while interest keeps building up, so the total cost of the loan increases.

The loan term depends heavily on the type of loan: mortgages are taken out for decades, while fast loans usually run from a few weeks to a few years. Before applying, it is important to understand how long you will realistically need to repay the money. If you can repay a loan in 12 months, it makes no sense to borrow over 30: the monthly payment will be lower, but because of the longer term you will pay noticeably more interest.

Why take out a loan

There are many reasons to take out a loan: buying a home or a car, unexpected expenses, renovation, household appliances, travel or an important life event. A loan lets you get what you need now and pay for it gradually.

But before borrowing, it is very important to make sure you can afford it. You will have to repay not only the amount received but also interest and fees. So first, take a careful look at your income and expenses: how much you can pay each month and for how long. If you take out a loan without assessing your finances, you may run into serious difficulties and, in the worst case, end up on a debtors’ list.

More about loans:
Lending types
Quick loans
Consumer loans
Mortgages, car loans