A loan is characterized by the transfer by one party (the loan giver) to the other party (the borrower) of both money and things, or the transfer of both.

A loan acts as a special case of a loan agreement and involves:

• credit can not, unless otherwise provided by the contract, be interest-free;
• transfer by one party (lender) to another party (borrower) only cash, and only for temporary use (not ownership);
• as creditor not any person speaks, but only credit organisation.

Thus, a loan is a bank loan. Bank lending is a set of relations between the bank as a lender and its borrower regarding:

• provision by the borrower of a certain amount of funds for intended use (but there are also unrelated loans);
• their timely return;
• receiving payment from the borrower for the use of funds placed at his disposal.

Classification of bank loans

Commercial banks provide their clients with various types of loans, which can be classified according to various criteria.

By main groups of borrowers loans are distinguished:

• enterprises and organizations;
• banks;
• to individuals.

In the Russian Federation, as of June 1, 2009, of the total amount of loans, which amounted to 19,377 billion rubles, 68.7% were to enterprises and organizations, 19.3% to loans to individuals and 12% to credit organizations.

By terms of use loans are:

• on demand, or on call;
• urgent.

The latter, in turn, are divided into:

• short-term (up to 1 year);
• medium-term (from 1 to 3 (5) years);
• long-term (over 3 (5) years).

By sizes loans are distinguished:

• large;
• average;
• small.

By ensuring:

• unsecured (blank);
• secured (collateralized, guaranteed and insured).

By method of issuing a loan can be divided into:

• compensation loans (directed to the borrower’s current account to reimburse him for his own funds invested in costs);
• payment loans (directly sent to pay for settlement documents presented to the borrower for payment for credited activities).

By repayment methods distinguish:

• bank loans repaid in installments (shares);
• bank loans repaid in one lump sum (at a specific date).

Types of bank loans

In global banking practice, there is no unified classification of bank loans. This is due to differences in the level of development of banking systems in different countries and the methods of providing loans that have developed in them. However, most often found in economic literature classification of loans according to the following criteria:

• purpose (loan purpose);
• area of ​​use;
• terms of use;
• provision;
• method of repayment;
• types of interest rates;
• sizes.

Types of bank loans by appointment:

• industrial;
• agricultural;
• trading;
• investment;
• consumer;

Industrial loans are provided to enterprises and organizations for the development of production, to cover the costs of purchasing materials, etc.

Agricultural loans are provided to farmers, peasant farms in order to facilitate their activities in cultivating the land, harvesting crops, etc.

Consumer loans are provided to individuals to cover urgent needs, repairs and purchase of apartments, houses, etc.

Mortgage Loans are issued against real estate for the purpose of construction, acquisition or reconstruction of housing.

areas of use: Loans to finance fixed or working capital. In turn, loans for working capital are divided into loans in the sphere of production and in the sphere of circulation.

At the present stage of development of the Russian economy, the most profitable and, as a result, the most widespread are loans directed to the sphere of circulation.

Types of bank loans depending on terms of use:

• poste restante;
• urgent.

Urgent Loans are usually divided into short-term (up to 1 year), medium-term (1 to 3 years) and long-term (over 3 years).

Types of bank loans for ensuring are divided into blank (unsecured) and secured. Blank loans are issued to first-class borrowers without the use of secondary forms of loan repayment collateral.

Secured Loans are the main type of modern bank credit. Depending on the type of security, they are usually divided into collateral, guaranteed and insured.

This classification of bank loans is used more in banking theory than in practice. In the practical activities of Russian banks, it is customary to divide bank loans depending not on the type, but on the quality of the collateral. In this regard, it is customary to distinguish between secured, undersecured and unsecured loans.

By repayment method Bank loans are divided into loans repayable in one lump sum and loans repayable in installments. Loans repaid with a lump sum payment are a traditional form of repayment of a short-term loan, since they are convenient from the point of view of legal registration. Installment loans mean repaying the loan in two or more payments over the entire loan term. Specific repayment conditions are determined and depend on the loan object, loan term, inflationary processes and a number of other factors.

By types of interest rates Bank loans can be divided into fixed or floating rate loans. Loans with a fixed interest rate imply the establishment of a certain interest rate for the entire loan period without the right to revise it. In this case, the borrower undertakes to pay interest at a constant agreed rate, regardless of changes in the capital market. In Russian bank lending practice, fixed interest rates are predominantly used. Floating rate lending involves the use of an interest rate that is adjusted periodically. In this case, the interest rate consists of two components: the main rate, which varies depending on market conditions, and a premium, which is a fixed amount and determined by agreement of the parties.

By size, bank loans are divided into small, medium and large. In banking practice, there is no unified approach to classifying loans according to this criterion. In Russia, a large loan is considered to be a loan to one borrower that exceeds 5% of the bank’s capital.

Depending on the areas of use Bank loans can be of two types: loans to finance fixed or working capital. In turn, loans for working capital are divided into loans in the sphere of production and the sphere of circulation.

By terms of use Bank loans are available on demand and urgent.

Urgent loans usually divided into: short-term (up to one year), medium-term (from one to three years) and long-term (over three years).

By ensuring loans are divided into blank (unsecured) and secured.

Blank loans issued to first-class borrowers without the use of secondary forms of loan repayment security.

Secured Loans are the main type of modern bank loan. Depending on the form of security, they are usually divided into collateral, guaranteed and insured. This classification of bank loans is used more in banking theory than in practice. In the practical activities of Russian banks, it is customary to divide bank loans into types depending not on the form, but on the quality of the collateral. In this regard, it is customary to distinguish between secured, undersecured and unsecured loans.

By repayment method Bank loans are divided into loans repayable in one lump sum and loans repayable in installments.

Loans repaid in a lump sum, are a traditional form of repayment of a short-term loan, since they are convenient from the standpoint of legal registration.

Installment loans, means repaying the loan in two or more payments over the entire loan term. Specific conditions for loan repayment are determined in the loan agreement and depend on the loan object, loan term, inflationary processes and a number of other factors.

By types of interest rates Bank loans can be divided into fixed or floating rate loans.

Fixed rate loans assume the establishment of a certain interest rate for the entire lending period without the right to revise it. In this case, the borrower undertakes to pay interest at a constant agreed rate, regardless of changes in the capital market. In Russian bank lending practice, fixed interest rates are predominantly used.

Floating rate lending involves the use of an interest rate, the amount of which is periodically revised. In this case, the interest rate consists of two components: the main rate, which varies depending on market conditions, and a premium, which is a fixed amount and determined by agreement of the parties.

By sizes It is customary to divide bank loans into small, medium and large. In banking practice, there is no unified approach to classifying loans according to this criterion. In Russia, a large loan is a loan to one borrower that exceeds 5% of the bank’s capital.

Credit is a system of economic relations in connection with the transfer from one owner to another for temporary use of values ​​in any form (commodity, monetary, intangible) on the terms of repayment, urgency, payment.

Credit- a product sold for a specific price - loan interest and on specific conditions - for a period of time, with return.

• The seller of the loan is the lender, the lender.
• The buyer of the loan is the debtor, debtor, borrower, borrower.
• The specific conditions under which the loan is provided constitute the basic principles of lending.

Main lending principles are repayment, urgency And paid. Repayment assumes that the values ​​transferred into debt in a form agreed upon in advance (loan agreement), most often monetary, will be returned credit seller (creditor). Violation of the principle of repayment can cause irreparable damage to the creditor, therefore, in modern conditions, it is customary in credit agreements to stipulate methods for insuring credit risk. Targeted lending ensures repayment and repayment of the loan.

Credit agreement- a written agreement between the creditor and the debtor when granting and receiving a loan, detailing the conditions of repayment, urgency and payment.

According to Art. 819 of the Civil Code of the Russian Federation, under a loan agreement, a bank or other credit organization (lender) undertakes to provide funds (loan) to the borrower in the amount and on the terms stipulated by the agreement, and the borrower undertakes to return the amount of money received and pay interest on it. The loan agreement must be concluded in writing. Failure to comply with the written form entails the invalidity of the loan agreement.

Credit risk— the risk of the debtor not repaying the loan to the creditor. Credit risk insurance is a system of measures to ensure that the loan is repaid to the lender on time.

Loan term

Urgency of lending- This is a natural form of ensuring loan repayment. It means that the loan must not only be repaid, but repaid within the period strictly specified in the loan agreement. For this purpose, the loan agreement elaborates in detail loan repayment and interest schedule. For example, the repayment schedule for a loan issued with the condition of repayment in 10 years at 10% per annum is as follows (Fig. 1):

Rice. 1. Loan repayment schedule for 10 years at 10% per annum

Loan security

Loan security- an additional lending principle that is always included in the loan agreement.

With the adoption of the law “On Banks and Banking Activities”, commercial banks were able to issue loans to their clients against various forms of collateral.

The most common types of loan collateral are:

• material assets, registered collateral obligation;
• guarantees of intermediaries of solvent and individuals (etc.);
• insurance policies issued by borrowers with an insurance company for the risk of loan non-repayment;
• liquid.

Loan payment

Principle paid A loan means that the borrower of money must pay a certain one-time fee for using the loan or pay over a specified period.

Loan target orientation

Additional principle lending is his target orientation, which creates conditions for compliance with the principles of repayment and repayment of loans, as well as, to a certain extent, their urgency. This principle involves issuing a loan for a clear purpose for its use (stipulated in the loan agreement). The targeted nature of the loan allows the lender to clearly understand the borrower’s ability to repay the loan on time with interest. Lending for productive purposes is considered the most stable, when the money invested gives a real return - profit.

Loan differentiation

Principle loan differentiation means a different approach to borrowers depending on their real ability to repay the loan.

The principle of a differentiated approach to borrowers, depending on their real ability to repay the loan taken out, involves dividing borrowers into first-class And dubious. Within these groups, more detailed differentiation is usually applied using the system credit ratings. Within credit ratings, debtors are differentiated in sufficient detail, taking into account a whole set of criteria.

Solvency is the borrower’s ability to repay the loan on time with interest. Depends on economic and socio-political factors.

The combined application in practice of all the principles of bank lending makes it possible to comply with both the national interests and the interests of both subjects of the credit transaction, the bank and the borrower.

Types of loan

Rice. 2. Types and forms of credit

Historically, the first form of credit was usurious credit, where loans were made for a very high fee. The usurious interest usually exceeded 100% and often reached 300-500% per annum. At usurious interest, mandatory material security for the loan was required.

Commercial loan is the provision of goods by the seller to the buyer with deferred payment. Since there is no immediate payment, the term of the loan is the deferred payment period. This loan, of course, incurs interest (Figure 3).

Bank loan- is the provision of a loan to a borrower, mainly by a credit institution (bank), on the terms of repayment, payment, for a period and for strictly specified purposes, and also most often under guarantees or collateral. Recipients of a bank loan can be both individuals and legal entities (Fig. 68).

Thus, a bank is an institution that trades in loans generated from money mobilized on deposits.

Bank profit= Loan interest - Deposit interest

As follows from the presented formula, a bank, when trading loans, in order to make a profit, must maintain the ratio:

Loan interest ≥ Deposit interest

Thus, the profitability of loans is expressed in the rate of interest, which is the ratio of the amount of interest to the amount of loan capital. The interest rate is a dynamic value and depends primarily on the relationship between demand and supply of loan capital, which, in turn, are determined by many factors, in particular:

• scale of production;
• the size of monetary savings, savings of all classes and strata of society;
• the relationship between the size of loans provided by the state and its debt;
• cyclical fluctuations in production;
• its seasonal conditions;
• the rate of inflation (as it increases, interest rates rise);
• government regulation of interest rates;
• international factors (imbalance in balances of payments, fluctuations in exchange rates, uncontrolled activity of the world market for loan capital, etc.).

A bank loan has a number of features:

• participation in a credit transaction of one of the credit institutions;
• wide range of participants;
• monetary form of loan provision;
• wide variation of loan terms;
• differentiation of loan terms.

The latter gave birth new forms bank lending: , and forfatting. Leasing is an agreement on the long-term lease of movable and immovable expensive property. Credit relations in a leasing transaction arise between the lessor, which can be a bank or financial company, and the lessee, a company that uses leased objects in its activities. Leasing is a combination of credit and rent. Leasing is always serviced by a long-term loan, which is repaid either cash payment, or compensation payment(goods produced on rented equipment).

Factoring— an intermediary operation (dealing) of a credit institution to collect funds from its client’s debtors and manage its debt claims.

Consumer credit is related to bank lending end consumer (population). Its main characteristics:

borrowers are individuals;

The intended purpose of such loans is to use them to meet the final needs of the population.

3. Opening bank accounts.

Loan products differ depending on the requirements for the borrower, the purpose of receipt, and repayment terms.

From the point of view of a banking organization, loans can be of two types. A loan issued by a banking structure is considered active. This option is the most common on the market. Passive loan - the bank acts as a borrower, assets are provided by the state or other banks. The bulk of loans on the Russian market are issued to cover the expenses of enterprises or the daily needs of households.

Types of loans

Organizations, banks, government agencies, individuals receive and repay loans on different terms. For example, targeted loans for agricultural enterprises are characterized by low interest rates and long repayment periods. Types of loans:

• According to the term of use, loans can be short-term (up to 12 months), medium-term (up to 5 years), long-term (more than 5 years). Short-term loans are characterized by small amounts and high interest rates; long-term loans are issued for the purchase of housing, equipment, industrial buildings, etc.
• Depending on the guarantees provided by the borrower, there are blank (unsecured) and standard (secured) loans. The guarantee of return of funds is property (collateral), surety (guarantee of a private person or organization), insurance payments.
• According to the repayment method, there are one-time loans (the borrower closes the loan with one payment for the entire amount of the debt) and loans repaid in installments. The second method involves making several payments according to a schedule established by the bank; this type of lending is the most popular.
• Depending on the purpose of receipt, there are industrial (to finance production), consumer (to purchase goods), budget (to cover government expenses), investment (to develop business) loans. The conditions for issuing such loans depend on the financial policy of the state. For example, in Russia, investment and consumer loans are the most accessible.
• According to the calculation method, bank loans come with a fixed (the cost of using funds is not revised) interest rate and a floating one. The second method involves changing the interest rate depending on the market situation, which is not beneficial to the borrower.
• Depending on the method of issuance, loans are divided into two types: compensatory, which is a transfer of funds to the client’s current account, and payment, when the client is issued a credit card.

The classification of bank loans by size (small, medium, large) depends on the level of development of the financial sector. For example, in the Russian Federation, large loans are those issued to one client and exceeding 5% of the bank’s total capital.

Credit system is a set of financial institutions that perform specific functions for the accumulation and distribution of funds.

All institutions included in it can be divided into three groups:

central bank;

commercial banks;

specialized credit institutions.

Central and commercial banks together form the country's banking system. It is she who performs the main credit and financial services of economic turnover.

A special place in the credit system is occupied by the central bank, which regulates the activities of the entire monetary system of the country. In most countries (Germany, France) central banks are government institutions; in some countries (USA, Switzerland), they are organized as joint stock companies.

The credit system also includes non-banking institutions engaged in credit operations:

Insurance companies;

pension funds.

They use their available funds mainly to finance the state and business by purchasing long-term bonds or shares.

There is a two-tier banking system in the Republic of Belarus. Its creation began with the Laws “On the National Bank of the Republic of Belarus”, “On Banks and Banking Activities in the Republic of Belarus”, adopted in 1990.

The need for credit relations in a market economy is due to the fact that some households and other economic entities have temporarily free cash and goods, while other participants in market relations urgently need them. Therefore, some can lend them, while others can borrow. The system of economic relations that arise in the process of providing a loan in cash or in kind by one legal (or individual) person - the lender to another person - the borrower on the terms of repayment and, as a rule, payment, is called loan.

Credit comes in several forms, which differ in the composition of loans and borrowers.

Main forms of credit:

commercial;

bank;

state;

consumer;

international;

leasing-credit.

Lending principles

The basic principles of lending include:

urgency and repayment;

target nature;

material security, payment.

Urgency and repayment mean that the loan provided to the borrower must be repaid within the period specified in the loan agreement.

Target character loan, its purpose is determined, first of all, by the borrower, however, when allocating a loan, the bank proceeds from its purpose, from the specific object of lending, from a specific project. Compliance with the principle of targeted direction of the loan ensures its repayment within the established time frame, since these terms are designed to carry out certain business operations.

Principle material security lending means that the borrower must carry out the financed project, purchase those inventory items or make expenses for which the loan was issued. However, in practice, often at the time of granting a loan, it is not confronted with specific inventory items and costs. Such loans, for example, are issued against future costs of production, development of commercial activities, entrepreneurship, etc. Here, a pledge of property, a guarantee, a guarantee, an insurance certificate of liability insurance for non-repayment of loans, etc. can be accepted as security for the repayment of loans.

Credit functions

In modern conditions, credit performs two main functions:

redistributive;

the function of replacing cash with credit transactions.

The purpose of a loan in the redistribution function is that with its help, temporarily available funds in monetary or commodity form, owned by one economic entity, are transferred for temporary use to other economic entities on the terms of repayment, urgency and, as a rule, payment.

The purpose of a loan in the function of replacing cash with credit operations is to create on its basis means of payment, the use of which leads to savings in circulation costs. This function is associated with the specifics of the modern organization of cash flow, i.e. the predominance of non-cash payments. Credit is provided mainly through banks. By placing and storing money in a bank, the client thereby enters into a credit relationship with him and, in addition, creates conditions for replacing cash in circulation with credit transactions in the form of entries in bank accounts. It becomes possible to carry out non-cash payments and provide loans in a non-cash manner.

Types of loan

We will consider only the main types of loans that banks provide.

The main types of bank loans are the following:

Consumer loan

Car loan

Educational loan

Loan for the purchase of real estate, mortgage

Overdraft

Small business loan.

Consumer loan is a loan that is provided directly to private individuals (households). The objects of lending in this case are goods that are purchased by a private individual, that is, for consumer purposes. Such goods can include household appliances, tools, furniture, etc. This type of loan is characterized by high interest rates and low amounts provided as a loan to the borrower.

Car loan is a loan that is provided to both individuals and legal entities directly for the purchase of automotive equipment. The objects of lending in this case are automobile equipment. This type of loan is characterized by lower interest rates and higher amounts provided as a loan to the borrower than with a consumer loan. Recently, the reduction in interest rates has been accompanied by the state, which takes upon itself the obligation to pay off a certain agreed interest rate in the event that the purchased vehicle is of domestic production. Thus, the state supports domestic producers, which contributes favorably to the economic growth of the state itself.

Educational loan is a loan that is provided directly to private individuals for education. The objects of lending in this case are tuition fees for individuals in an educational institution on a non-budgetary basis (school, institute, university, college and other educational institutions). This type of loan is characterized by even lower interest rates. Usually the surcharge is provided by the state.

Mortgage is a loan that is provided to both individuals and legal entities directly for the purchase of real estate. The objects of lending in this case are real estate. This type of loan is characterized by the lowest interest rates, higher amounts and a longer loan period provided as a loan to the borrower than with other types of lending. This type of loan is the most reliable.

Overdraft- this is a loan that is provided by a bank to pay for payment documents in the event of insufficient or absence of funds in the borrower’s current account. In this case, the bank debits the funds from the borrower’s current account in full, that is, automatically provides the borrower with a loan in an amount exceeding the balance of funds. Overdraft repayment is funds received into the borrower's account.

Small business loans. This type of loan is provided to both legal entities and private entrepreneurs directly for various purposes, such as purchasing equipment, paying salaries to employees, etc. The objects of lending in this case are the needs of the business. This type of loan is characterized by high loan amounts provided as a loan to the borrower. This type of loan is a really effective method of improving the economy as a whole.

All of the above types of loans are, in our opinion, the main ones for the current period of time. Each credit institution reserves the right to classify the loan it provides, so there can be as many types of loans as desired. More and more types of loans appear over time. So this process depends directly on technological progress and human development. At the moment, we consider exactly those types of loans to be the most relevant, which are classified above.

Task

The table presents data on labor resources and employment.

Calculate the number of unemployed and the unemployment rate:

How does GDP lag if the country's natural unemployment rate is 5%?

The solution of the problem:

The number of unemployed is calculated by excluding the number of employed people from the labor force.

B = 868849 – 807960 = 60889

The unemployment rate is the ratio of the number of unemployed people to the labor force, expressed as a percentage.

Unemployment rate =

Y = 60889 * 100 / 868849 = 7%

When solving the problem, the unemployment rate was 7%. And natural is 5%. This means that a 2% increase in unemployment is above its natural level.

In lawOkena: Every 1% increase in unemployment above its natural level leads to a lag in GDP by 2.5%.

Thus, the country's GDP lags behind by 5%.

Consumer types of loans are classified:

By lending purpose

Targeted lending:

With a targeted loan, the borrower is required to indicate the specific purpose for which the funds will be used. For the lender, the goal is the main indicator in the process of determining the decision to issue a loan. With a targeted loan, many banks do not issue money in cash, but transfer funds directly as payment for a product or service. This method of issuance has two advantages: on the one hand, the borrower is freed from the need to perform unnecessary actions, making a purchase in cash or non-cash, and in the first case he is also protected from the risks associated with transporting cash, and on the other hand, this procedure ensures the intended use loan.

It should be noted that even in the case of issuing funds in person, credit institutions monitor the bona fides of the borrower, checking whether he actually paid for the product or service specified in the agreement.

Targeted loans include:

• Mortgage credit lending
• Loan to buy a car
• Education loan
• Holiday loan
• Credit for specific goods through stores

Non-targeted lending

In case of a non-targeted loan, the bank may also require the borrower to indicate the purpose of the loan, but in this case no supporting documents will be needed - the bank will not check the use of funds. However, the size of a non-targeted loan, as a rule, is not very large, since the bank is not ready to risk funds without having a clear understanding of what they will be spent on, which, accordingly, increases the risk that the borrower will not repay the money.

Non-targeted loans include:

• Loan for urgent needs
• Credit cards

Unlike non-targeted loans, targeted loans are secured by collateral: a car, an apartment, or any product.

By type of security

Loan collateral is a set of conditions that guarantee the repayment of the amount of funds, consisting of the principal amount of the debt and interest for using the loan.

As a rule, based on the type of collateral, loans are divided into:

• Secured by collateral
• Secured by surety
• Without collateral

Collateral security

During the process of applying for a loan, a special agreement is drawn up, under the terms of which the borrower provides the lender with collateral in the form of some property. The contract reflects such parameters as cost, location, period of transfer of property, etc. In this case, the creditor has the right to sell the collateral if the loan was not repaid or was not fully repaid. In this case, the return includes not only the loan amount, but also interest on its use, as well as other penalties and commissions, if any were provided for in the loan agreement.

The most common forms of collateral:

• Real estate
• Automobile
• Securities
• Precious metals

Collateral can be provided in two ways:

• Physically the collateral remains with the borrower
• The collateral is transferred to the disposal of the lender until the borrower fulfills all obligations under the loan

Providing surety

A surety is an obligation of the guarantor to the creditor for the fulfillment by the debtor of the creditor of his obligations. The guarantee can be full or partial.

This type of security doubles the likelihood that the creditor’s claims will be satisfied, since, in essence, the obligations are imposed on both persons – the debtor and the guarantor. The surety relationship arises after the conclusion of the surety agreement. This agreement creates obligations for the guarantor, which means that he is always one of the parties to such an agreement. The other party can be either a lender or a borrower.

Without collateral

An unsecured loan is a loan that is provided without collateral or guarantee.

As a rule, the rates on such a loan are significantly higher than the rates on similar secured loans, since the bank includes in this difference in interest the losses that it may receive if the borrower fails to fulfill its obligations. Of course, the bank also includes risks in a regular loan, but in the case of an unsecured loan they turn out to be much higher, that is, non-payments under the agreement occur more often.

Another option for an unsecured loan requires that the borrower has a salary card from the given bank or has other relations with it. In this case, an unsecured loan can be issued at the same interest rates as if there is collateral or a guarantor, and in some cases even on more favorable terms.

However, unsecured loans are usually not large in size, which is again associated with increased risks in relations with the borrowers of such loans.

Such loans are a common form of short-term loans.

By repayment method

• One-time
• Differentiated payments
• Annuity payments

One-time repayment method

A one-time loan repayment method involves repaying the entire debt at once at the end of the contract term. The possibility of early repayment may be provided, but this is often accompanied by the payment of an additional commission or the entire amount of interest calculated for the loan term.

Under a one-time loan agreement, the borrower pays the principal amount at the end of the billing period, and interest on the loan throughout the entire term. Thus, the main burden falls on the end of the period.

Interest rates on one-time loans are higher than the average for loans. This is due to the dependence of risks on the duration of the loan - the longer the term, the higher the risk. Since in the case of a one-time loan the principal amount is paid at the end, the risk of such a loan is higher than for a loan of the same amount, which will be repaid gradually over the entire term.

Considering the conditions, it is advisable to take this loan in the case when a significant amount of money is expected to arrive close to the end date of the loan period.

Differentiated payments

With a differentiated loan repayment method, the entire amount of the principal debt is divided into equal parts, and interest is accrued monthly on the amount of the principal debt. After each payment, the amount of interest is reduced in proportion to the remaining amount of the principal debt, and the amount of payments on the principal debt remains the same. As a result, the size of the monthly payment gradually decreases, but at the very beginning of payments, the amount of monthly payments can be quite significant.

Annuity payments

If the loan is repaid in equal payments, the monthly payment amount is fixed and does not change. One part of this payment is the payment of the principal debt, the other is the payment of interest. However, these parts are not equal. When payments begin, interest may account for a large portion of the monthly payment. Gradually, with each subsequent payment, the amount of payments on the principal debt increases, and the interest part decreases, while the size of the payment itself remains unchanged.

In practice, it turns out that at first the borrower pays off a very small part of the principal debt, which is especially noticeable in the case of a mortgage or simply a large long-term loan, when after several years of payments the amount of debt has decreased slightly, despite the fact that the amount of payments significantly exceeds this figure. Early repayment after approximately half the term is also unprofitable from the point of view of interest payments, since the bulk of them has already been paid earlier.

This method is convenient from the point of view that it is easier to budget for and monthly payments are feasible, in contrast to differentiated payments at the beginning of the period.

However, financially such a loan is less profitable, since the overpayment on it will be greater both in the case of early repayment and when following the schedule.

By type of interest calculation

With a fixed interest rate

The fixed interest rate is set at the time of conclusion of the agreement and does not change throughout the entire loan period. This type of interest calculation allows both the borrower and the lender to accurately calculate their income and expenses.

With floating interest rate

A floating interest rate means that the loan rate can change during the term of the loan agreement, either up or down.

As a rule, such an interest rate is formed from a constant and variable part. The variable part depends on the global economic situation, and the better it is, the lower the rate.

By timing

• Short-term (up to 1 year)
• Medium-term (from 1 to 3 years)
• Long-term (over 3 years)

First of all, the loan term affects the size of the monthly payment. But besides this, it can also affect the interest rate on the loan.