A bank loan is that financial operation in which two protagonists participate, a lender (an entity that lends the money) and a borrower (individual or legal entity that receives it). The amount of money to be lent and the interest rate applied will be fixed from the outset with a return commitment, usually before a notary, in a given time.
The bank loan is a financial instrument much requested not only by individuals but also as loans for companies.
When we talk about bank loans, we are usually referring to the classic personal or consumer loan.
What is the Purpose of a Bank Loan?
In general, the amount of money requested in a personal or bank loan is intended for the purchase of a specific good or service.
In the case of companies, we may be more accustomed to talking about credit operations materialized in lines or policies, but as we have said on other occasions, credit accounts must be requested to face temporary periods of lack of liquidity or cover the expenses of an extraordinary situation related to working capital.
So why apply for a bank loan?
In the case of organizations, the reasons could be several:
- Purchase of machinery
- Purchase of transport item
- Repairs and Rehabilitation of WorkSpaces
- Purchase of Computer Equipment
- The hiring of Specialized Services related to the ordinary activity.
- These would be just a few examples but could include all those that had no place in a credit operation.
When applying for a bank loan, different aspects must be taken into account:
Interest Rate to Pay
The interest rate is the price that the bank will charge to grant the operation. When applying for a loan, special attention should be paid not only to the interest rate but also to the APR.
What is the APR?
The APR is a calculation that includes the nominal interest rate along with all those fees that will be applied to the loan. Therefore, sometimes the nominal interest rate is low, however, if the operation is charged with commissions, we will not be profitable to accept that loan.
It may be better to choose a loan with a nominal interest of 5% than another at 3% but full of commissions.
Guarantees and guarantees
There is a big difference between the guarantees required by a personal or consumer loan with respect to those of a mortgage loan since in the latter, the main guarantee of compliance with the payment obligation is the real good that is mortgaged. This means that in case of default, ownership of the property will pass directly to the bank.
In addition to the guarantee of the property, mortgage loans are backed by the personal guarantee of the applicant.
In the case of a personal loan, the guarantee of the collection is based on all present and future assets that the applicant has. This implies a greater risk for the banking entity, therefore, these types of loans have higher interest rates than mortgages and their repayment is required in a shorter period of time.
When we are going to request a loan operation from a bank, the latter will carry out a feasibility study on the risk of the operation, in order to decide whether it is approved or not.
For this, a series of documentation must be submitted (DNI, IRPF, income statement, VAT declaration, proforma invoice or budget that shows the costs of the good or service to be acquired, history of other loans … etc)
As for the return period, one of the keys is that the duration of the operation does not exceed the useful life of the good that is purchased.
In the event that the entity decides to grant the operation, it must deliver to the borrower a binding offer in which all the conditions applicable to it will be specified.