13.05.2022

LOAN FROM A BANK - WHEN IS IT GOOD TO ABSTAIN?

Bank credit seems to be an easy and quick solution to financial problems. People take out loans most often to renovate and furnish their homes, replenish mortgages, consolidate accumulated debts, buy a car, cover current or medical expenses, and even vacation.

However, the use of bank credit has a number of disadvantages. Getting ready-made money usually costs money. Assess whether the product or service is worth the extra costs such as fees and interest. In addition, borrowing can become a bad habit that often leads you to overspend. What are the alternatives?

Rescheduling and deferral

If you have public obligations such as taxes, insurance, customs duties, fines, confiscations, etc., in case of temporary financial difficulties you can request their deferral or rescheduling. The difference between deferral and rescheduling is in the periodicity of payments.

In the case of deferral, the deadline for payment of the entire public debt is postponed, setting a new deadline for its payment. When rescheduling, the obligation is paid in installments - in installments with a certain deadline (maturity), for which a repayment plan is approved.

Own savings

Saving money makes your life easier and gives you financial security in unforeseen situations, and regular contributions to your savings account help you be more responsible for your finances. Having a little more money in your account and seeing it increase over time is certainly better than being in the red every month.

If you have a good reason for urgently needing a large sum of money, resort to your savings. And in case you haven't started saving yet, do it now. Even if you do not have a high salary, put BGN per day in your savings bank and after using the collected money, always start reimbursing the amount again.

Loan from relatives

In a difficult situation, you can borrow money from relatives, friends, colleagues or neighbors. Most people have probably lent or borrowed money from loved ones. The advantage of such a loan is that you usually have to repay exactly as much as you took. Unfortunately, it is not uncommon for a delayed or unpaid loan to lead to a breakup.

Never take out loans that you cannot repay. Assess well who you are asking for help and agree on clear conditions for the return of the money. In addition to frequent loans, your loved ones can help you make your own money. Together, look for options to increase your income, such as extra work, training and more.

Loan from a non-banking institution

Borrowing from non-bank financial institutions is normal nowadays. Unlike bank loans, non-bank loans are usually for small amounts, and the institutions that grant them have grown strongly in recent years. These companies are legal entities that provide quick loans to consumers.

In order to choose a reasonable loan, it is important to carefully review the terms of the contract and to get acquainted with the specifics of repayment and interest on the loan. Ease of obtaining funds does not mean that you can approach this deal irresponsibly. Delays in paying contributions can mean higher obligations for you. In case of such a problem, consult the lender again and look for a solution together.

The difference between a private loan and а loan from a private person

Financial institutions in Bulgaria are not state-owned, which makes their loan a "private loan". In principle, things can not go wrong if you know that the amounts you can borrow are not very large and that they will have to be repaid under the terms of the private loan agreement.

To save unnecessary problems, do not enter into relationships with individuals or creditors of money that are not registered as legitimate credit institutions. Avoid moneylenders, private individuals and pawnshops. They can promote their services as loans from individuals at no extra charge. At first glance, this may seem like a real way out of an emergency, but it will probably cause you a lot of headaches.

Risks of borrowing from private individuals

Unlike a loan to yourself or a loved one, this type of loan has both interest and a lot of uncertainty. If you take out a loan from a bank, questions such as fees for early repayment, how are things to change the terms of your loan - installment, term, interest, when your loan may be declared due and how the collateral can be realized, if any such, are largely clear and settled.

In the case of private individuals, however, very often these issues are not clearly regulated in the contract at all or are regulated in such a way that only a person with legal education can understand them. When repaying the loan, it is important to have documentary evidence of the repayment of your installments. Be careful with giving cash or remittances to individuals that the lender may make you do. If you do not protect yourself, there is no one to protect you.