There is an increasing number of people who are seeking to gain access to a personal loan or other forms of financial credits. As the global economy continues to gain momentum, local banks will continue playing a vital role in money lending to organizations or individuals. Below is a dive into all you need to know when you want to access some form of credit from your local bank. As a new customer intending to take a loan, you should make yourself familiar with the bank processes.
Are you eligible for a loan?
Banks Cannot Pay PAYE until they find out if those taking loans from them can be able to repay back. The first step is to analyze your creditworthiness. The banks will take a keen look into your credit and banking history in order to work out if you will be able to pay them back their money. They will try to gauge the risk being carried by the bank and by you when they offer you the financial credit.
For business or commercial loans, a credit analyst will take a look at your business’s financial statements, governance succession plan, ethical business structure, commitment to the business, and management structure, in order to gauge if the business is able to pay back the loan taken. Apart from gauging the customer, the bank’s credit analyst will seek to find out how the loan being given will impact the profit and loss statement of the bank.
Types of credit.
People can gain access to a wide range of credit facilities from SACCOs, banks, and even micro financial institutions. Credits can be long term or short term and will include letters of credit, mortgages, unsecured loans, hire purchase loans, or even credit cards.
When borrowing money, banks will charge you an interest loan. The interest loan will depend on your risk profile and loan type. There are two main types of interest rates:
1). Variable rate- this interest changes as varies with the market.
2). Fixed rate- for the duration of the loan this interest rate remains the same.
Before taking a loan, your bank should offer you information on the type of interest rate they will charge so that you can easily plan your finances and repayment plan.
‘Securing’ a loan.
When a loan is offered, the bank will want some form of ‘security’ that it will hold onto for the loan duration. This is to act as a form of insurance if you default on the loan. When you default on the loan repayment, the bank will then go ahead and auction your ‘security’ which can be in form of assets like title deeds or motor vehicles to try and recover the loan debt.
Other loans can be secured by guarantors. Keep in mind these guarantors can request confidential information from your bank. If you default on paying the loan, your guarantor becomes liable for the rest of the loan repayment period.
Costs of taking a loan.
There are few costs and fees that are associated to a bank loan. Some are regular payments while some are charged upfront. Most of these costs are dependent on your loan negotiations with the bank.
General fees include the application fees, commission fees or negotiation fee( also known as the arrangement or processing fee), the interest rate charges, a prepayment penalty fee (depending on your bank), commitment fee, and even penal interest fee or delayed penalty.
Often, banks will need your identification information like pin number, business license, identification card, and even certificate of incorporation. The bank will also want access to your business’s audited statements or a personal payslip for individuals.
Looking for a loan, click here to know more. Make sure you get proper help and advise from a professional.