Basic principles of lending by a bank to individuals

Increasingly popular among the population begin to use loans for various needs. However, after the bank's approval of his candidacy, few people think how the lending process is carried out at all, and what guarantees and benefits the bank has. But this is directly related to the terms of the loan repayment.

If you call the basic principles of lending, then this is urgency, repayment, pay.

The most important of these is repayment, that is, return to the creditor of his debt. Most often, in contracts, credit risk insurance is prescribed in advance . The most reliable loans from this point of view, which are given for a specific purpose (buying an apartment, car, etc.), since in such cases the purchased thing will be pledged to the organization until the debt is repaid.

From recurrence smoothly follows the following principle - urgency. It means that the loan must be repaid in a strictly defined period, which is stipulated in advance. In the loan agreement, a schedule is developed, according to which the client will pay monthly installments taking into account interest. In some cases, banks allow early repayment of a loan. However, the contract must specify in advance how this will happen, since sometimes lenders charge an additional fee for this procedure.

The principle of payability, in simpler terms, means paying interest for using the loan. This is the main condition for issuing a loan, since this is how the financial institution receives its basic income.

Other principles of lending are the differentiation of the loan, its security and the target orientation.

The principle of differentiation of the loan provides for an individual approach to clients, depending on their solvency. Conditionally, bank employees divide borrowers into two groups: first-class and questionable. Further, each of these groups differentiates into several subgroups, depending on the credit rating, which includes the solvency of clients. Such principles of lending are important for borrowers not less than for banks, as a loyal attitude and quick loan release largely depends on the previous credit history.

Security of credit is not always, but in most cases. Denotes this concept of issuing a loan for any security. This can be both a pledge of the acquired property, and guarantors, who in case of a non-return of money by the debtor, will have to pay the debt themselves. Some banks offer their clients to issue an insurance policy that protects the loan against non-repayment, and subsequently allows at least partially to compensate the loss to the lender. These and other principles of lending provide the banking institution with a stable income from activities in this area.

The target orientation of money is important for both the lender and the financial institution. It depends on the interest rate, the amount issued and the period of use of money. For example, mortgages or car loans, as a rule, are issued for a longer time and larger amounts, compared with non-targeted consumer loans. This is explained by the possibility of collateral, which increases the chances of the bank to return its debt.

It is worth noting that the principles of lending are different from the rules for issuing a loan, but these two concepts are closely interrelated. It is necessary to take into account the principle of credit development, a mechanism that allows you to move and develop money loans, varying interest rates or making other conditions more loyal.

Thus, the principles of bank lending are taken into account when the client refers to the institution for a loan, as they reflect almost the whole essence of the loan.