What terms of the credit agreement should you pay attention to before taking out a consumer loan?
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The National Bank of Ukraine presented the financial literacy website “Okay”. This is a free online platform that will help you gain sufficient financial knowledge to make responsible personal finance decisions.
The financial consultant of the site is called Horpinka. She knows everything about financial services, so she will be able to answer any questions and help you not get lost in the maelstrom of financial information.
In this article, Horpinka talks about the four terms of the credit agreement, which should be paid attention to before taking out a consumer loan.
General expenses for consumer credit
General costs include: interest, loan commissions and any other payments that will need to be paid in the process of obtaining, using and repaying the loan (for example, commissions for crediting funds to repay the loan, insurance payments, services of a notary, appraiser, credit intermediary, etc.).
Loan repayment type
The classic scheme – the body of the loan is divided into equal parts for the number of periods (months of loan use).
Accordingly, along with the interest accrued on the loan balance, the payments at the end of the term are smaller than the payments at the beginning of the loan term, therefore the financial burden at the beginning of the loan repayment is higher.
Annuity scheme – is calculated in such a way that the body of the loan and the interest accrued on the balance of the loan make equal payments for the entire term of the loan.
In this case, the body of the loan is repaid more slowly, so the interest overpayment is greater than under the classic repayment scheme.
Payment of additional services
A financial institution may include additional services in the credit agreement. For example, such a service can be certain types of voluntary insurance.
However, in some cases, insurance may indeed be mandatory (for example, when buying a home with a mortgage).
Early repayment of the loan
The loan can be partially or fully repaid early. Pay attention to the wording of the terms of early repayment of the loan in the loan agreement.
Make the final decision on the loan taking into account what is important to you: the lowest interest rate, the longest credit period or no additional payments.
Read more information about what you should pay attention to when applying for a loan on the website “OK” from the National Bank of Ukraine.
This material was prepared by the National Bank of Ukraine with the support of the International Finance Corporation (IFC) in partnership with the Swiss State Secretariat for Economic Affairs (SECO) and the UK Government’s Good Governance Fund in Ukraine (GGF).
The content is the sole responsibility of the author.
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