Applying for a loan is a very common way to face certain expenses that exceed our ability to pay- same purposes. Buying a car, renovating the house, organizing a wedding, paying school ... there are many occasions when our savings are short to pay for these expenses or, directly, we prefer to apply for money in our bank to go back Little by little, without spending at one go this box that we have been saving for years.
Whatever the case, when it comes to going to a bank, we should know exactly how much money we need and what our ability to pay, because they are two important factors that the bank will take into account to grant -or's the loan or not.
The keys to a personal loan
To choose the loan that best suits our needs, we must pay attention to three key aspects:
The capital we ask for
It is the total of the money that is requested. Most banks offer loans from € 1,000 or € 1,500, while the financing limit depends to a large extent on the profile of the client that requests it.
The interest we have to pay
It is the price of the money left, what the bank charges us to leave a certain amount of money and run the risk of default. It is represented in a percentage that we refer to as TAE and TIN. Let's quickly look at these two concepts:
- The TIN acronym refers to the nominal interest rate, the price that the bank charges to lend us money. It is calculated based on a percentage of the capital offered to the client. This percentage is applied to the outstanding capital at any time. There are no possible fees for the loan in the TIN.
- The TAE is the equivalent annual rate and, like the TIN, it represents the cost of the loan, but this time including commissions and other expenses that may be associated with the granting of the loan.
Therefore, when analyzing the interest of the loan and comparing it 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 repay it, the so-called amortization period. The most normal thing is that this term goes from two to ten years, although these periods may vary from one bank to another.
It is important to carefully choose how long we will repay the loan, since, although a longer repayment term will make the monthly payments smaller, in the long run, it will also lead us to pay more interest. Instead, a shorter repayment term will increase the monthly fee but will make our loan cheaper.
What is a bank fixed to give us a loan?
When a bank gives us money it is trusting in our ability to return the borrowed amount, 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 can restore the money received. That is why 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 they are enough to allow us to pay monthly installments. For this reason, the coefficient or debt ratio is used, a percentage that ranges from 35% to 40% and beyond which it would not be safe to provide a certain amount of money to a client. Or, what is the same, if the monthly payment 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 under these conditions.
In this situation, we should modify some of the aforementioned parameters to obtain our financing: either request less money, try searching for a bank that requests us a minor interest or accommodates a longer repayment period.
Yes, 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 consider to study our application. The number of owners who apply for the loan is also valued since two payrolls (or demonstrable sources of income) offer more payment guarantee than a single one.
Another key that can favor the balance in our favor is our history as clients and payers. If during our life we have been responding in a timely manner to all payments of other loans or credits, the bank will tend to rely more on us. That said, there is no need to point out that access to any bank loan will be vetoed if we have fallen into a list of defaulters.
Finally, having goods in our name, like a house or a vehicle, always represents an aid 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 the 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 back at the time of the loan cancellation.
When we apply for a loan, we need to know exactly what our debt limit is, the maximum monthly fee that we can afford to pay without going through financial "shocks". Depending on this data we can begin to explore several options and, as with any other decision, it is important to compare the alternatives that we offer.