The most important information about creditworthiness

 

 

 Anyone who thinks about taking any loan will certainly come across the concept of creditworthiness. Although the concept itself may suggest what this ability is, it’s worth delving into all the details that apply to it. Below are the most important of them.

What is credit standing?

What is credit standing?

The term creditworthiness means the estimated assessment of the borrower’s readiness to repay the entire liability without any problems. The ability is calculated by the bank for a specific person and a loan with specific parameters or is given as a numerical value. In both cases, an appropriate algorithm is used, while the purpose of the calculation is to assess the risk of lending cash.

What affects creditworthiness?

What affects creditworthiness?

As already mentioned, banks use the formula that calculates a variety of factors when calculating capacity. The most important of them are:

  • amount and source of income,
  • monthly maintenance costs,
  • other active liabilities,
  • BIK scoring,
  • credit history.

Banks also take into account other criteria that have less impact on the calculation result. These include: marital status or occupation. When applying for a loan, be prepared for a wide variety of questions that allow your institution to assess its creditworthiness and risk of borrowing money as accurately as possible.

Can I take a loan without creditworthiness?

Can I take a loan without creditworthiness?

At present, one should be prepared for the fact that even loans of a small amount will require showing adequate creditworthiness. If our willingness to pay the liability is insufficient, you can look for a way to improve it or decide to change the loan parameters (eg by borrowing a smaller amount).

How to improve your ability?

How to improve your ability?

The most effective way to increase your credit standing is to increase your income. It is good to know that banks take into account only documented sources of income, and what’s more – people who receive remuneration on the basis of an employment contract are always in the best position.

Another idea is to try to get a loan, not yourself, but with another person or people. It is important for other borrowers to be able to prove their creditworthiness – otherwise it may be equally difficult to get money.

Another way requires planning in advance and is to build a positive credit history. This can be done by taking smaller loans or by creating a credit card. This method can help, of course, if we pay regular and diligent repayment obligations arising from these financial products.

Summary

Creditworthiness is not only a tool that banks justify not giving out their money. The lack of it can often be a good clue as to what can be improved in your home budget.

Loan installment – what affects the installment amount?

Many people planning to take out a loan already have some liabilities towards the bank. When deciding on another loan, the clients of this type of institution usually look for the most attractive offer that will not be a great financial burden for them. The most often chosen finance product can be divided into installments. After selecting the appropriate loan, the bank sends a repayment schedule and the borrower has nothing to do but transfer the appropriate amount to the specified account on a monthly basis.

The loan installment is a monthly cost that will accompany you for a short period or for many years. It may change, because the installment consists of several elements. Among others: interest, insurance, repayment time, commission and loan repayment form. In each loan installment we pay back: part of the debt and interest. The most popular repayment formulas are equal and decreasing installments:

  • In installments equal, the sum of capital and interest is always the same. Only the proportions of the ingredients change – interest at the beginning, and capital at the end;
  • In decreasing installments, we pay the same amount of capital each time, and the amount of interest changes. It decreases over time, because less and less debt remains to be repaid.

The biggest differences between the equal and decreasing installments are visible in long-term and high-value mortgage loans.

Credit installment – how is it calculated?

Credit installment - how is it calculated?

The amount of monthly loan installments significantly affects the household budget, especially in the case of liabilities incurred for high amounts, which will have to be regulated for many years to come. There are several elements in the monthly loan installment. The loan installment consists of two main parts: capital installment – includes part of the borrowed capital (loan amount) and interest installment, which includes interest accrued during the given installment.

The loan installment also often includes:

  • Commission – a fee that the bank charges for granting a loan. Paid once or included in the monthly installment. Its amount is determined as a percentage of the loan value. If a financial institution offers a commission-free loan, it will otherwise compensate for the loss, e.g. by imposing the need to purchase additional products;
  • Interest – one of the main loan costs. The first type of interest rate is fixed rate. It lets you know the installment amount when you take out the loan. The installment does not change during the term of the loan and applies mainly to short-term loans. The second type of interest rate is variable interest rate. Its value is not constant because it depends on interest rates set by the National Bank. The rules for changing interest rates should be indicated in the contract and information form,
  • Type of installments – fixed, decreasing and increasing installments. The customer should verify which installments will be most favorable for him and will not significantly affect the total cost of the loan,
  • Insurance premiums, e.g. unemployment insurance, life insurance, low contribution insurance, bridging insurance. Credit insurance is voluntary or compulsory, but we will certainly appreciate its importance in a difficult life situation. It depends on the loan amount and the loan period.

Equal installments

Equal installments

When looking at cash loan offers, it is worth paying attention to how we will pay the amount due. In the case of installment loans, two solutions are available: equal and decreasing installments. These two forms of repayment have their advantages and disadvantages.

Equal installments are a repayment option that is very popular among borrowers. This popularity is mainly due to two reasons. The first is that the repayment system is assessed by banks as less risky. This is due to the fact that in the first years the amount of the monthly equal installment is much lower than the decreasing installment, and this significantly affects the applicant’s creditworthiness. Secondly, they introduce a certain order in managing the household budget, although it does not mean that their amount will always be the same.

Decreasing installments

Decreasing installments

The vast majority of people taking loans choose decreasing installments. Decreasing installments are often called capital installments because the capital part is always fixed and only the interest on the loan changes.

In fact, decreasing (capital) installments, although cheaper in general, are used much less frequently than equal installments. This is mainly related to the process of assessing the customer’s creditworthiness. At the very beginning, during the repayment period, the decreasing installment places a greater burden on the borrower’s budget, as it can be up to several dozen percent higher than an equal installment. Often it is this parameter that determines the award of funding in the amount requested.

Free loans – the hooks you need to know about

 

The free loan is now available in all loan companies’ offers. What are such free loans and are they really free? It turns out that the most, but only in specific cases.

Free loans – specification

Free loans - specification

The profit of a loan company that grants payday loans are the costs that we must bear in exchange for borrowing money. No loan company gives loans for free because it is not a charity. Still, loan companies are promoting free loans to attract customers. The word “free” undoubtedly suggests that you do not have to pay anything to borrow money, and this is true, but there is one condition – it must be the first loan of a particular client in the chosen loan company.

Non-bank institutions are trying to draw the attention of new customers and show them the best side. They want to destroy the myth that loans are expensive and cause problems later. In proven companies, this is never the case, and as a proof of integrity, these companies offer free loans. Each new client of a loan company can get the first loan for free, ie he will repay as much as he has borrowed. Initially, such a system worked within the time frame of promotions, but now it is a standard that applies all the time. The promotion for free loans is, however, limited by the amounts you can apply for. For most lenders, only free loans up to USD 1,000 come into play. If the customer wants to borrow a higher amount the first time (if he can at any given company), then unfortunately he will have to bear the costs adequate to the current price list.

Is it worth taking a free loan?

Is it worth taking a free loan?

In order to assess the profitability of a free loan, it is worth quoting a very simple but extremely illustrative example. Let’s assume that you plan to buy equipment for USD 1200. Most loan companies offer the first loan for free, but up to a maximum of USD 1,000. If you want to borrow USD 1,200, you may have to pay back USD 1,300. Wouldn’t it be better in this situation to refrain from buying a bit, collect the missing USD 200 on your own and borrow the USD 1000 above? In this case, you will give the company only USD 1000 and buy your dream equipment for USD 1200. If you want to borrow the whole amount, ie USD 1200, for the first time, the equipment will cost you USD 1,300. You lose USD 100 on it. It may not be much, but it is 1/12 of the value of the equipment purchased. By spending 100 dollars every month in such a careless way, you lose exactly as much as the equipment costs annually. Unfortunately, you have to pay for wastefulness.

This simple example has shown you that free loans are profitable because you can handle money without having to pay for such services. You invest the first thousand freely and without costs. You will find out what the standard of service in a particular company is and you will gain experience that will help you make decisions on possible future loans.

Application for a free loan

Application for a free loan

Applying for a free online loan is easy. All you have to do is go to the page and check the ranking of free loans and then choose the company that you think has the best offer. With one click you can go directly to the website of the selected company and complete the application. Free loans are provided without leaving your home. All you have to do is specify the loan amount and repayment date. The calculator will immediately perform a cost simulation for you, and if the loan is up to USD 1,000, you will pay USD 0 for it.

The next step is to complete the form with your details. To do this, provide your name, number, ID card number, e-mail address and address. Sometimes it is also necessary to specify the type of income obtained (work, own business, disability or unemployment) and an indication of monthly income and expenses. Finally, simply accept all legal consents and submit the form for consideration. Free loan applications are in most cases processed within 15 minutes. Only sometimes you have to wait for a decision up to 24 hours. After the application has been approved, the money is transferred to the customer’s bank account and the repayment period, usually 30 days, begins to run.