Getting a loan from a bank - what elements are involved?

In life, we can’t always do everything alone, especially since there are times when unexpected expenses arise that our salary’s cannot cover. Some people turn to family and friends when this happens, but when expenses get a bit high, we tend to think about borrowing from a bank. However, it isn’t always easy to get a loan, a bank loan, that is, and it is good to know what elements are involved in this process. It isn’t enough to simply contact the bank to ask for a loan. There are certain rules and procedures, and your creditworthiness is looked at, first and foremost.

What is a client’s creditworthiness?

In short, creditworthiness means to look at whether a client is capable of handling the instalments of a a loan. For a bank to determine this, it asks the client to submit certain types of information and data. The good thing is that at ProCredit Bank, the loan application, as well as all necessary documentation is submitted online. You only need to visit the bank on the disbursement date, and not even then, for loans up to RSD 600,000!

Regardless, online or in person, there are certain rules concerning all loan applications; and documentation and collateral are a must.
When applying for a loan with ProCredit, the following is examined:

Credit Bureau Report

The CB Report includes all of your prior borrowings, but also, whether or not you were in default in paying any loans and how long you were in default. Also, it shows whether you are currently paying off any loans, but also, all obligations in connection with current accounts, which include overdrafts, credit or debit cards and all surety information. If your CB Report is in order, the greater the chance that your loan will be approved.

Employment

A vital factor is also your employment status, that is, one of the conditions of receiving a loan from ProCredit Bank is that you have been under permanent employment (indefinite employment) for a minimum of six months, with the same employer. This guarantees for the bank that you will be capable of returning the loan, as you have a reliable monthly income, and, on the other hand, it allows the bank to place an Attachment of Salary on your income, whereby the bank can withdraw the instalment from your salary, if you fail to settle your obligations in a timely

Salary

We believe in the rule that too much indebtedness is not a good thing, therefore, we can place a burden of no more than 60% on a client’s earnings - because it is important that you can ‘handle’ the loan instalment, and that it doesn’t seriously effect your quality of life. For this reason, a decisive factor in approving a loan is the amount of salary you earn, thus, another condition of loan approval is that your salary must be at least RSD 53,000.

The following may also impact whether your loan is approved or not:

Surety - if you are a surety (guarantor) for someone who has not repaid their loan or is in default, this may impact whether or not your loan is approved
Your household - How many members are there in your household? Do they work? How much do they earn? Can they repay the loan if you are unable to do so? - sometimes it is necessary to look at the ‘big picture’.
Mortgage possibilities - this is one of the ways in which the bank additionally secures its funds, although this usually applies to larger loan amounts - e.g., if you apply for a housing loan

The bank uses all these methods to secure its investment in the case that you are unable to repay the loan, and the type of collateral you may need in the case of certain types of loans granted by banks also include - bills of exchange, surety or guarantor, life insurance, securities, loan/deposit insurance i.e., participation (downpayment).

What types of loans do banks offer?

Given that lending is the primary activity in which banks engage, there are various types of credit products that you can use. Nobody likes to borrow, but sometimes, it’s a necessity. This is why it is important to know what types of borrowing banks have on offer. Let’s start at the beginning.

Overdraft

An overdraft, or approved amount of cash that can be withdrawn over the amount available on the account is in fact the easiest type of loan. It is also the most common form of borrowing. Simply put, an overdraft allows you to spend money even when your account balance is showing 0. Yes, your account will be ‘in the red’, but you won’t have to worry. An overdraft can be a good thing, but only if you carefully ‘iron out’ your card. There are certain rules where this type of lending is in question:

There is a maximum amount of indebtedness that you are approved - which is usually determined based on how much you earn. In order to take out any sort of loan with us, one of the conditions is that you earn a minimum of RSD 53,000.
You choose how much your overdraft will be - you don’t need to choose the maximum offered to you by the bank. We approve overdrafts up to 2 monthly salaries
Interest is charged on overdrafts, but only on the amount used. It is important to know that the interest we calculate at ProCredit is only applied to the days that your account was in overdraft, and our overdraft is the most affordable* one available because our interest rate is only 9% (EIR 9.62%)!

*source: NBS

Credit card

Some people’s skin begins to crawl even at the sheer mention of a credit card. Why is that? Because with this type of lending, you decide how much you want to borrow. What does this mean? The Bank will determine the amount available on your credit card, of course, but will you be able to control your spending? The more you spend, the greater the debt is that you have to repay, and with this debt, there is also interest added on. You’re still asking yourself how credit cards function?

Let us explain:

First, you and your bank decide on a limit, whereby your monthly earnings are looked at, as well as your Credit Bureau Report. You don’t have to accept the limit given to you by the bank, you can ask for a lower limit, RSD 20,000, for example.
Also, you decide with the bank relative to your monthly debt repayment. The word ‘revolving’ is often mentioned here. In short, ‘revolving’ means the possibility of transferring monthly funds from one monthly cycle to another, that is, the minimum percentage amount of the monthly debt. At ProCredit Bank, the revolving rate is 5%, which is the minimum amount of what was spent, and which must be returned to the bank the following month, relative to what was spent in the previous month
Let’s look at an example: if you spent RSD 15,000 this month out of the approved RSD 20,000, and you decide on a revolving 5%.
This means that in the next month of using your credit card, you will have to pay at least RSD 750 of the debt you incurred in the previous month (5% of 15,000 = 750). Of course, you can pay off more, this is just the minimum you are required to pay. You also pay interest on this, which is 11% with ProCredit Bank.
If you pay off RSD 750 with interest, next month you will have RSD 5,750 available to spend (20,000 - 15,000 = 5,750). If you decide to pay off more, RSD 5,000, for example, instead of the minimum debt, you will have RSD 10,000 available for spending next month.

And this is basically how a credit card works. As this was simply a ‘textbook example’, it is important to mention that limits are usually much higher, and most of the time people pay off the minimum debt. This is exactly why the debt is piled on and monthly interest continues to be slapped on to the pile. So, the most important element to this type of borrowing is self-control. So, if you are a ‘big spender’, we recommend staying away from credit cards.

Investment loans for private individuals

We at ProCredit promote a culture of savings and responsible borrowing, which is why we would never recommend taking out a cash loan just to go on vacation. We know that no one takes out a loan because they want to and this is why it is important to have a higher goal in mind when taking out a loan that will take a few years to pay off. For instance, if you wish to invest in the purchase of a new vehicle that you will use to travel long distances, new furniture, on your child’s education, renovating your flat or weekend getaway, starting a small business or refinancing a loan - we’re here to support you.

A good thing is that at ProCredit, you can take out a loan up to RSD 600,000 completely online, without having to visit the bank. For larger amounts you will have to visit the bank just at the moment of loan disbursement, everything else is done online. Sound interesting? Click here to review the conditions applied to this form of borrowing.

Housing loan

One of the biggest decisions you will ever make, especially if you have a family, is to purchase your own flat. It is important to know that you are required to (participate) make a downpayment of 20%, and that you will almost certainly be required to secure a mortgage for this type of loan, while all other conditions are basically the same for this type as for all other types of credit products. We understand that collectingdocumentationcan be tedious, which is why our clients can submit everything online. Click here to review the entire process.

Energy Efficiency Loans

Windows aren’t keeping the cold out/heat in? Your heating bill is through the roof because of bad insulation? You’ve read somewhere that heating pumps are an excellent solution for heating and cooling and that they can even generate savings? You would like to install solar panels on the roof of your house? Not a problem because with us you can take out an energy efficiency loan and with a return of up to 20%! We call this a valuable investment, as it adds to the quality of your life but is also environmentally-friendly. Nevertheless, you’re asking yourself - what kind of loan is this, how do I get the return, and can I use this type of loan to finance the purchase of new windows and insulation? Answers to this and other FAQ are available to you here.

We’re certain that this text has had an impact on the way you view bank loans. If you know someone who would benefit from this mini lesson in financing, do them a favour and pass this link along.