Loan companies and banks from all almost possible sides bombard us with information about how a favorable loan offer can be obtained right now and from them. At first glance, advertising slogans are very encouraging and can tempt even those who do not need so much cash injection.
When you take out a loan, you need to be really careful about what and how you plan to sign and commit to. Once inaccurately analyzed loan agreement or misunderstanding the basic concepts can really cost us dearly … Because, unfortunately, despite the fact that loan companies and banks boast that cash is waiting for us immediately to receive it, and so we will have to pay it back – the only question is price. It is worth letting us decide about the conclusion of the loan agreement and be aware of the terminology used for these loans.
Loan agreement – no foreign words dictionary, don’t move
We will try to bring several situations in which we may feel uncomfortable when applying for a loan. To simplify our understanding of the context, we provide specific examples of what might happen to us when applying for a loan. Well, at the beginning we submit an application and the question is asked whether we do not want to use the grace period? Of which? Well, grace is a deferment of the first installment – in the case of loans it is usually up to three months, and banks usually do not charge any additional fees for using this option.
This option is usually not available in the case of loan companies, because the loans granted there have a much shorter repayment period. So by concluding the contract now and using immediately the funds borrowed from the bank, we will pay the first installment even for a quarter! We are inquisitive so we ask how we should pay the installments and in what amount – we get the answer that the repayment formula is annuitet and in accordance with our expectations, self-repayment will take place on the 28th of each month in the set amount . What does this mean in turn? Explaining these terms is equally simple – annuitet is simply repayment in equal principal and interest installments, which means that apart from the first and last equalizing all other installments we will pay in the same amount, which will simplify the planning of repayment service for us.
Here, too, we have a simpler model for loan companies – all installments are the same for the borrower’s convenience. And self-repayment is nothing more than automatically charging an installment from the available funds from our bank account in order to avoid forgetting to settle the liability or its amount. Another concept we may come across while servicing our commitment is prolongation – how do you understand this term in turn? It is simply the possibility in the world to extend the repayment of our liability, ie spread the payment over a larger number of installments, thanks to which our monthly obligations will be lighter, ie simply smaller installments to be paid to the bank. Generally speaking, this option is rare in the case of loan companies – a new contract is more often used. Less pleasant terminology, the meaning of which is also good, so that we know, is the issue of prompts, ie requests for payment, which the bank can send us if we do not meet our loan repayment obligations.
However, not so complicated!
Using the hints contained in our study, the issue of terminology used by loan companies and banks in the case of loan agreements should not give us much reason to worry. Often, the terms quite simple in meaning have their professional or legal nomenclature, which someone who is not professionally related to finance can understand as complicated and incomprehensible, and in fact they are very simple.