Before deciding to take a loan, it is necessary to carefully consider the importance of need that would be funded in this way, especially when one takes into account that the decision on taking a loan will significantly strain the budget of the loan receiver over a longer period of time. If one recognizes the need for taking a loan, it is necessary to get information from several banks about different types of loans and the terms offered by those banks, in order to choose the type of loan which best suits the needs of loan applicant. For this purpose, one may ask basic information about the desired types of loans from banks.
How to choose the most favorable bank?
In order to choose the type of loan, it is necessary to compare the conditions under which loans are offered by different banks, in order to select the bank. The easiest method of choice is to compare the conditions offered by different banks, primarily a comparison of effective interest rates. If the effective interest rate on an annual basis is lower, the loan is cheaper. It should be noted that the effective interest rate is a measure of the cost of loan only if denoted in the same currency when compared to other loan. It should also be noted that for loans with different repayment periods, the amount of annuity (installment) does not represent a true indicator of the cost of loan. A loan with a longer repayment period may have a lower amount of monthly annuity, but that does not mean that the overall obligation is lower. When comparing the conditions, it is necessary to compare the costs related to the products offered ,,in the package”, regardless of whether they are required (payment cards, etc.) and which are not included in the effective interest rate. Particularly, attention should be given to the possibility of a bank to unilaterally amend the provisions of contract and whether the precise conditions have been determined under which the bank may perform the above mentioned.
Note: Before taking a loan, each applicant needs to consider his/her creditworthiness, i.e. to carefully consider the amount of monthly income and expenses, and to assess whether he/she will be able to meet the loan obligations on a timely basis in the future, especially when contracts with variable conditions are in question (variable interest rate).
Loans with an agreed variable interest rate or loans with a fixed interest rate
a) Loans with an agreed variable interest rate
- The initially agreed interest rates are lower compared to the same for loans with an agreed fixed interest rate
- During the loan repayment period, there is a risk of interest rate growth, which is greater the longer the repayment term
- The interest rate changes with the change in the reference value (most often it is EURIBOR)
b) Loans with an agreed fixed interest rate
- The initially agreed interest rates are slightly higher compared to the same for loans with an agreed variable interest rate.
- Interest rates are unchanged during the loan repayment period and there is no risk of interest rate growth regardless of developments on the financial markets.