Taking a loan is one of the most serious financial commitments we decide to make. Regardless of what you want to borrow money for, you need to think carefully before making your final decision. This applies not only to the bank, the amount of the loan or its interest rate, but also to the type of installments. What do we distinguish? What are their characteristics? Which installment option is better?
What is a cash loan?
Cash loans are one of the most popular forms of borrowing available in banks. A financial institution, such as a bank, pays them out at the client’s request and on specific terms. A cash loan can be used for any purpose , hence there is no need to report on what you want to buy with this money. Of course, a number of other conditions must be met, including income stability and other guidelines.
When we decide to take a loan, we usually look for the best possible offer that a given bank can offer us. To make it easier, it is best to use credit comparison websites available on the Internet. This will allow us to verify the offers and find the best one for us. Of course, you also need to know what to look for when looking for a loan.
What to look for when taking a loan?
There are a few important details that you should pay attention to when looking for the best cash loan offer. We usually pay attention to interest, but it is not the most important one. The APRC is very important, i.e. the Annual Real Interest Rate. It will contain all the costs of a given loan and after calculation will show how much we will actually have to give back to the bank.
Another important issue that we should pay attention to is the repayment time and installments. It should also be remembered that we have two types of installments to choose from: equal and decreasing. How are they different?
What are equal installments?
Installments, i.e. how much we will repay our loan monthly (it includes both the capital and interest part), can be equal or otherwise called average. This type of repayment means that, at least in theory, the installment will be the same throughout the loan period . It is very popular, and is treated by banks as the less risky. Additionally, in the first years of credit, installments are definitely lower than decreasing installments.
However, it should be remembered that equal installments do not always have to be the same. What does it mean? The fixed amount of installments depends primarily on the WIBOR rate , and its decrease or increase may affect the amount of installments. Proportions are another matter. In decreasing installments, the initial years of loan repayment consist almost exclusively of the interest part, only then the proportion turns back and the borrower begins to repay the correct loan amount.
What are decreasing installments?
Decreasing installments, as the name suggests, mean that over time and subsequent repayments, the installments become smaller. What is the catch? To pay less over time, you first have to pay more, in other words the initial loan years are associated with significantly higher installments than in the case of equal installments and only then they begin to decrease. The difference also concerns the proportion of capital and interest, where the first is constant throughout the repayment period, and the second decreases over time.
The downside of the decreasing installment is that it lowers the creditworthiness , because when calculating it, the initial installment amounts, i.e. the highest ones, are taken into account.
What to choose – equal or decreasing installments?
Most people choose equal installments because it gives you a better chance of getting a loan at all. With low creditworthiness, it is better not to decide on decreasing installments. However, if money is applying for people of mature age and with a stable situation and stable income (e.g. retirement), decreasing installments may be a better option because their repayment will simply be easier over time. So before we decide to go to the bank, it is best to think over all the available options and calculate exactly what credit we can afford and which installment option will be more favorable for us.