Long-term loan – new opportunities and the inevitable losses?

Real long-term lending in recent years shows a substantial recovery. Once we removed the crisis imposed on restrictions on the timing and amount of granted loans, banking organizations again very actively engaged in expanding the range of credit products. However, potential borrowers before making a large purchase using credit funds, is to weigh all the “pros” and against “.

Before a long-term issue credit should take into account such factors as credit conditions and a detailed calculation of the amount of the overpayment for the use of loan funds. This mini-survey will provide you with the opportunity to make a choice in which the optimal timing of when payments totaling overpayment can be minimized.

Why is it so profitable credit institutions?

The average term of long-term loans ranging from 3 to 5 years, although the maximum can reach 30 years. In contrast, short-term loans, which during the crisis have been blocked almost all banks, a system of long-term lending continued to function, albeit with less intensity.

Long-term credit is considered one of the most profitable for banks lending products, in spite of all the risks associated with it. This makes long-term loans not only commercial, but also investment banks, as well as pension and investment funds.

The main risks are “accompanied by” long-term loans, are non-payment of the loan for a specified period, the fall in the price of collateral, or the death of the borrower. At the conclusion of credit agreements for periods of 30-50 years, such situations are infrequent, yet the losses from such risks far exceeds the total yield of long-term loans.

The basis for a long-term loan is its duration. Dependence proportional – the more the term of the loan agreement, the greater the overpayment on the loan. And although consumer credit does not provide long-term, car loans and mortgages are developing in this direction for a long time. Average interest rates that banks offer borrowers foreign currency loans are issued for more than 3 years are in the range of 8-12% per annum. If you calculate the total amount that the borrower will pay for 20 years of use of the loan, it turns out that under the current tariff rates, he will pay the bank the amount that will be higher than the real value of the acquired property at least twice.

Long-term loan – to reduce losses to a minimum

Established in the domestic credit market situation is such that the long-term credit is not the most appropriate solution. And if you decide to arrange a credit agreement, the main criterion should be the possibility of redemption at any force majeure – by implementing collateral or independently. Analyzing offers various banking institutions use the program for calculating loan – thanks to her, you will be able to compare the real cost of credit in various banks.

Another important thing: before to sign the credit agreement, to determine what form of payment will suit you more. Differentiated system will allow you to gradually reduce the size of the monthly payments and annuity is constant throughout the loan period. However, if you plan early repayment, the annuity payments to you are more profitable.