How to choose the right loan?

We may encounter various financial difficulties during our lives, when we need to borrow money from a financial institution. Since there is wide choice of loan products in the market, it is not easy to find the right one. In the section below, we advise you how to avoid making a mistake.

Six steps to consider when choosing a loan:

1. I need money right now.....who will borrow me? 

You can borrow money from a bank, non-bank financial institution or private person. If you decide to borrow from a non-bank financial institution, HERE is the list of those duly authorised by Národná banka Slovenska.

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2. Am I elgible for a loan? How much money do I need?

Your monthly loan instalment should not be higher than  1/3 of your net income. •How long will I be able or willing to pay loan instalments? The shorter the repayment period, the less you will pay in interest. •Do I have some savings? Lenders are not always willing to provide the whole amount requested.

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3. What kind of loans are available? You can borrow money by taking out a loan of the following types:

a) housing loan 
b) consumer credit 
c) credit card loan
d) overdraft facility
e) leasing

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4. Which parameters shall I compare? Do not accept the first offer, compare at least three. As for fees and costs, compare the following parameters:

- annual percentage rate of charge (APRC), i.e. the rate expressing the price of a loan.  Tip: the lower the APRC, the less you will pay for the loan in total (the more favourable the repayment conditions are). ATTENTION: RPMN is to be compared for loans of the same size and with the same length of repayment.

- interest rate - fees (especially the loan application fee, loan modification fee, early repayment fee, and the monthly fee)

- additional costs, e.g. insurance costs, cost of current account switching, etc.

The loan repayment period, the amount of monthly instalments, loan security and other services (e.g. loan insurance) should also be taken into account.

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5. What are my rights?

- to receive, through advertising, truthful and comprehensible information about the lending conditions - do not rely on information obtained from advertising only;
- to receive answers to all your questions concerning the lending conditions;
- to take the draft loan agreement home and read it over carefully before I sign it; 
- to withdraw from the loan agreement without stating the reason within fourteen calendar days;
- to receive information about any change made in the interest rate.

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6. Do not forget about the risks and assess carefully whether: 

 -  you really need what you are going to buy.
 -  you will be able to repay the loan (you would otherwise face foreclosure).
 -  you have any other outstanding loan.

Overview of the most frequently requested loans

Type of loan

Description

Possible purpose

Loan costs

Housing      loan

Long-term loan    secured by real property

Purchase, (re)construction of real property

Lower interest rate but        a higher total cost (due      to loan repayment over       a longer period)

Consumer  credit

One-off credit          for any purpose,    unsecured

Purchase of a car, furniture or other durable goods

Increased total cost (due     to small instalments paid   over a longer period)

Credit         card loan

Short-term loan,     repeatedly   renewed

Repeated expenses on    any purpose

 

Higher interest rate and   fees compared with other loans, an advantage is      the interest-free period

Overdraft facility

Short-term loan, repeatedly renewed

Unexpected expenses

Higher interest rate compared with other loans

Finance     lease

One-off loan          for a specific purpose

Car leasing      with the option    to buy

First instalment: min. 15%      of the price of the car,    motor third-party liability and CASCO insurance is required

Example:

You would like to buy new kitchen furniture and appliances, but you have no savings. Hence, you have decided to borrow money from a financial institution. A suitable product for you will be consumer credit provided for any purpose.

After contacting several institutions, you decide to take out a loan with the following parameters:
Loan amount: €4,000.-
Interest rate: 8.9%
APRC: 9.27%

It is important to choose a loan with a maturity period enabling you to pay the monthly instalments without paying too much for the loan.

In this case:
Maturity period: 24 months 
Monthly instalment: €182.56
The amount borrowed (€4,000)
will be overpaid by €381.44.

Maturity period: 36 months
Monthly instalment: €127.01
The amount borrowed (€4,000)
will be overpaid by €572.36.