How to choose the right loan arrangement for your needs?

When talking to someone about taking out a loan, the most important and challenging part of the process is often the process of applying for a loan. It takes a lot of documents, most often you are not sure where to get them, it takes a few bank trips and you count on all the potential complications that come with it.

While we agree that the process of applying for a loan can be complex, there is one, more significant and more complex one that is often overlooked – choosing the loan arrangement that best suits your needs. You already know how it goes – you decide to search online to see what kind of loan your bank has to offer, only to find an avalanche of information that may not make enough sense to you at first reading. Abstract figures, different types of accrued and unaccounted cartoons, make you feel overwhelmed with a wealth of data without being any closer to deciding.

It is very important to note here that banks are required by law to display all the information you see and the way you see it, to make the whole process as transparent as possible. Unfortunately, this information is often not enough for the end users, and there is a blockage. With this in mind, bank recently tried to redesign its website to provide users with this information in a comprehensible way using a credit calculator.

A loan calculator shows you how different loan amounts and length of repayment period affect the amount of interest and the monthly annuity you pay. However, to make the whole process even easier, we point out what else you need to pay attention to when choosing a loan.

Choose the type of loan that best suits your purpose

Choose the type of loan that best suits your purpose

It is often overlooked that banks offer different types of loans. Banks have different types of loans in their offer, depending on what you want to use the funds you get this way. Depending on the purpose of the loan, banks also offer different interest rates. For example, if you need funds to renovate your apartment, it is likely that you can get more favorable conditions by applying for an renovation loan instead of a cash loan.

  • The nominal interest rate (NIR) is the rate stated by the bank as the interest rate in the contract at which it calculates interest on the principal.
  • Effective Interest Rate (EIR) is an interest rate that reflects all credit costs, including fees, insurance, deposit and other directly related credit costs.

For detailed information on interest rates, I recommend our text – What You Need to Know About Interest Rates.

Carefully study the loan offerings offered by your bank, depending on the purpose for which you need the funds.

When, then, should a cash loan be taken?

This type of lending is useful when you need to finance some unplanned circumstances

Cash loans are different from special purpose loans in that you have the freedom to do whatever you want with extra cash. Your freedom to manage money certainly comes most often with a slightly higher interest rate than the price of that “luxury”. This type of lending is useful when, for example, you need to finance some unplanned circumstances and need a longer period to repay them.

If you only need a little extra cash, then you should consider whether actually taking out a loan is an option for you. Credit cards work in a similar way to the credit itself, but if you repay the funds used for less than a month, you generally will not pay interest and in that case they may be a better solution. Here you can read all about how overdrafts work, which can also be a substitute for credit in the event of short-term financial need.

The longer the repayment period, the higher the total amount of interest you will pay

The longer the repayment period, the higher the total amount of interest you will pay

This is something that is often overlooked. A lot of people, when taking out a loan, do not pay enough attention to the total amount of interest they will repay through the loan arrangement. Making a decision on the terms of a loan arrangement based solely on the amount of the monthly loan repayment rate leads to a wrong, uninformed financial decision. You need to be aware that the longer you pay off the loan, the more it costs you and the total interest accrued.

The ideal situation is to fund your larger ventures with a combination of savings and credit.

Therefore, you need to consider your preferences and options well. As the loan process is an important decision, you need to find the perfect balance for your needs between the repayment period and the amount of money you want to borrow from the bank. For even more affordable financing, the ideal situation is to finance your larger ventures with a combination of savings and credit. Therefore, we also suggest that you save as much as possible, thus financing part of your future financial needs.

In case you need assistance in calculating the loan on your specific terms, you can contact us by filling out the form on the loan pages that best suits your purpose. Our financial advisors will be happy to assist you and give you the right advice. The primary goal of bank is first and foremost that its clients make well-informed, thoughtful financial decisions , which we strive to contribute through our blog.

Before taking any type of loan, my advice is to be well informed about how much that loan will cost you, including all the accompanying expenses, as well as the amount of the monthly annuity you will repay.