Microcredit Is a Perfect Option
As a rule, when applying to banks or lending institutions for the loans, people pursue some goals. They might plan to buy cars or apartments, make some repair or home improvements, have plans for training, education and loads of other things. Borrowers are people who have the money, but most definitely they are not enough to make necessary purchases, and saving does not work because there’s no time to wait. The popularity of consumer loans is growing all the time, with more and more people finding last resort in credits. Moreover, they are willing to use cash loans and trust loans as well as car loans and mortgages. Also, leading positions are occupied by credit cards and other unsecured loans. Previously, banks were eager to lend to almost everyone and their risks were compensated by higher interest rates.
However, with the onset of the financial crisis, lending institutions had to determine very clearly the line when people still continue to borrow, despite the high interest rates, and still bring profit. In the course of time, requirements for such organizations’ business activity were reviewed and the required reserves were increased. So, overdue amounts became unprofitable. It resulted in a reduction in the number of issued loans and increased standard requirements on borrowers.
Such factors as the crisis, the fall in exchange rates and geopolitical issues impacted the economy and increased financial risks. To get a loan in such circumstances one should have high incomes, perfect credit history and a stable job in a reliable company. Still, despite such requirements, the desire and the need to borrow have not disappeared.
People who were excluded by banks from the list of potential customers also need loans. Here, microcredit institutions come to their aid. They have been functioning for a long time and nowadays enjoy a heyday of their activity. In this case it is important to carefully read the contract and do not rush to sign it, because many borrowers have fallen for the bait, then claiming the fraud and extortion has taken place, although everything was defined in the papers. Even a small delay threatens to grow into a huge debt. Typically, the debt exceeds the real value by 2 to 3 times.
People who apply to such organizations are often simply afraid to contact with large banks (even if they do not have bad credit history or low income). Complicated terminology and obscure contracts usually scare citizens right away. On the contrary, microfinance institutions can be regarded as “popular” and simple. However, it’s always good to remember that in financial affairs it’s better not to rush and think everything over before taking the responsibility of securing the loan.
7 Tips About How to Lend and Not Go Bankrupt
Of course, it’s very easy to take a loan and stop postponing the purchase of the necessary things. But it also demands soberly assessing one’s financial capabilities, so as not to doom oneself into a debt bondage. This article sets out some guidelines that will help you to protect yourself from taking “bad” loans.
Tip №1. Clearly define a safe amount you can afford for monthly payments.
Financial advisors think it best to take no more than 40% of the income for paying out all loans. In this case, even with a decrease in your income, you will be able to pay out and live on the remaining money. Exceeding the 40% threshold may lead to a very difficult circumstance. So, be sensible! The perfect option is 15-25% of your monthly budget for paying out loans. This allows you to comfortably use the borrowed funds, with practically no restrictions.
For example, with the income of 25,000 rubles, loan payments should not exceed 10 000 rubles per month (ideally, they should not exceed 6,000 rubles, so that you can be firmly confident in the future).
It’s also worth noting that you need to consider your current income only, not the expected future profits. Thus, if you plan to increase salaries in the upcoming months, and want to borrow the money right now, you need to keep the current income out of calculation. Or, you might postpone taking the loan until your income is actually increased.
When determining the optimum monthly payments do not forget to take parameters such as interest rates, insurance and commission into account.
Tip №2. Determine the suitable term of the loan.
This period can be calculated on a basis of the first tip. That is, the term of the loan must be long enough to pay out the loan from 40% of the income per month.
This suggestion gives us a formula: TL = (L *%) /% I, where TL – term of the loan, L – the amount of the loan, % – the annual interest rate on the loan, % I – a comfortable percentage of your income (* – multiplication sign / – division sign). Accordingly, if the term exceeds 12 months, then add to it another time due to the interest that will form in the new year.
You will immediately notice that the bigger the monthly payment is, the shorter the term of the loan, and vice versa.
Tip №3. Have a “safety cushion”.
When you calculate the optimal time and comfortable payment on the loan, you need to create a so-called “safety cushion”. What is it? This is an untouchable amount of 3-6 monthly payments on your loan. It is kept for unexpected situations that can leave you without a steady income (layoff, injury, etc.). With such a “safety cushion” you provide yourself with the time to search for earnings in case of hardship and save your nerve during the crediting period. This money can be put in the bank at interest, or be kept at any other safe place. The main thing is that they are inviolable. This advice is very relevant for long term lending and large credit amount.
Tip №4. Take the “good” loans only.
In financial terminology concepts such as “good” and “bad” loans are frequently mentioned. “Good” are loans on goods and services, which will retain their value and will provide dividends in the course of time. These goods include, for example, real estate, a car if you plan to become a taxi driver, education, or private business. This may also include household products, but only if you just cannot do without them. For example, a broken cell phone, or a refrigerator justify the loan, since it is difficult to imagine modern life without these things.
“Bad” loans include loans for goods the value of which will only be lost in the course of time. Such goods are better to buy for cash, but not in debt. They include expensive brand goods, clothing, jewelry, entertainment, etc. The same cell phone, if you decide to change it because of the fact that you saw a new commercial or want to impress your friends, will be a “bad” acquisition.
“Good” loan will allow you to feel the benefits of borrowed money and lift you to a new level of financial literacy.
Tip №5. Better more than less!
When you pay out the loan, pay slightly more than the minimum monthly payment. In case you underpay even a few rubles, you can run into penalties and automatically spoil your credit history. Amount, paid above the mandatory payment, will still remain on your account and will add to the future payments.
Tip №6. Do not forget to make minimum payments each month.
If you have paid an amount, equal to several monthly payments, it does not enable you to stop making the minimum amount of debt repayment. For example, your monthly payment on the loan is 7,000, and this month you have paid out 14, 000. All the same, the next month you will also need to make a minimum payment of 7,000. Be careful!
Tip №7. Specify the amount of early repayment of the loan.
If you had the opportunity to pay the entire loan sooner than the term of the loan ends, we advise you to contact the bank and find out how you can calculate the amount of the last payment. It can be either smaller or larger. In any case, it will protect you from unpleasant surprises. When the loan is fully paid out, it’s better to get an appropriate paper in the bank to officially close it.
Thus, knowing and adhering to these simple recommendations you can quickly answer the question of how to take a loan and not go bankrupt. Good luck!
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11 Reasons for Refusing a Loan
Despite the huge number of banks and an even bigger number of loan offers, people are often been refused a loan. What are the main causes of refusals?
Why Do Banks Refuse a Loan?
• Age (Both too young and too old). In the first case, the bank reinsures itself from the non-payment due to the lack of stable job, in the second – from the death of a potential borrower.
• Solvency. Banks may not like: the ratio of the amount of the monthly payment on the loan and wages, work for the individual entrepreneur, small job experience and frequent job changes.
• The absence of a work or home phone (the first case is perceived as unreliable job, the second – as the risk of lack of permanent residence, so it would be difficult to search for the debtor).
• Unreliable data (different data submitted by a potential borrower to different banks; mistakes in documents revealed when checking the information by security service).
• Black list. You can get there even in connection with a small delay on the previous loan. • A small amount of the loan along with a high salary. If it is clear that the client will pay out in two or three months, the bank simply thinks it unprofitable to issue such a loan.
• Loans from the other banks. Banks do not think it plausible that the client has salary enough to pay out several loans at once.
• Alcohol or drug intoxication. If the loan agreement was signed in such states, it may be broken by the court.
• Prison tattoos. The bank may suspect the person as a fraud and not being able to pay out the loan.
• The client seems not to fit his/her job. The Security Service can draw conclusions about the unreliability of an organization (for example, if a potential borrower, who has been reported to be CEO, is very young and doesn’t have a university diploma).
• The client has not come alone. In this case, perhaps he/she is forced to take a loan or it’s just a vagabond with no possibility to identify who he is.
We have listed some of the most popular reasons of why the bank may refuse to issue credit money. However, do not feel discouraged if you fall into one of these categories, because it’s just a statistical theory and the way out can always be found. In reality, not all banks will refuse you because of fierce competition for customers among lending institutions. Banks are interested in getting new clients, even if their backgrounds are not ideal.