There is a lot of credit in this word … Low rates, speed of processing and issuing a loan, the confidential tone of a credit consultant and all that. Well, how can you resist?
Consumer loans are provided directly to households (families). Its objects are durable goods (apartments, furniture, cars, etc.). It acts either in the form of the sale of goods with deferred payment, or in the form of a bank loan for consumer purposes. As a rule, the term of a consumer loan is three years. At the same time, a fairly high real percentage is charged.
Refinancing rate (Federal funds rate) - the amount of interest on an annualized basis payable to the central bank of the country for loans provided to credit institutions. These loans are refinancing of a temporary lack of financial resources. Through such loans, the liquidity of the banking system is regulated when credit institutions lack funds to lend to customers and fulfill their obligations.
The refinancing rate is an instrument of monetary regulation, with the help of which the Central Bank influences the rates of the interbank market, as well as the rates on deposits of legal entities and individuals and loans provided to them by credit institutions.
In foreign practice, the term "Discount rate" is often used.
(From Wikipedia - the free encyclopedia)
I wanna run away
Never say goodbye
I wanna know the truth
Instead of wondering why
I wanna know the answers
No more lies
I wanna shut the door
And open up my mind
(Linkin Park - Runaway) “Young man! Yes you! Do you want to take a profitable and convenient loan for the product you like? Commission 0 and very low percentage! Agree. Why spend money now, if you can pay gradually without harming your wallet?..”- says a sweet girl, smiling flirtatiously and looking into her eyes.
Everyone has heard similar barkers and huge banners inside and outside the store (plus a media attack on public transport and metro). Low rates, speed of processing and issuing a loan, the confidential tone of a credit consultant and all that. Well, how can you resist?
The reason for writing this article was a story that happened to my friend. Probably, I will not reveal anything fundamentally new for you, but I will remind you of something and draw your attention to some points.
All enterprises know that credit is a blessing, because they cannot do without borrowing. Thanks to the borrowed funds, you can expand the range, increase the purchase volume, carry out repairs or expand the business. All this will lead to additional income and, as a result, an increase in profits. Organizations that have been lending to one bank for a long time have the opportunity to use such devices as overdraft, line of credit, and so on. Very convenient and profitable. The main thing is not to get carried away with borrowing.
But is credit so good for households (families)? Consumer loans for urgent needs, targeted lending (mortgages, car loans, etc.), in general, there is also a choice here. The fundamental difference here is that the goods that will be purchased will be consumed (used) by you, and you most likely will not receive income from it. But a headache and an empty wallet due to carelessness and haste is easy. It is worth remembering:
- until the loan is closed (repaid), you have no right to dispose of this product, since it will be owned by the bank,
- the longer the loan term, the more interest you will have to pay,
- not all banks agree to early repayment of the loan, which may result in appropriate fines or refusal to close.
So, my friend's story. On the eve of the wedding anniversary of his parents, Ivan (in his place could be any other character) decided to make a gift - to buy a TV through a loan, gradually paying the arrears from his salary. A sweet girl very willingly and sincerely (as it seemed then) talked about the advantages, about how quickly everything would be formalized now. In the meantime, she dumped a bunch of papers on the table and, pointing her finger at the places where the signature should be, continued talking, persuading, smiling.
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| Photo: B Rosen
flickr.com/rosengrant |
It is done. The contract is signed (16 months), the goods are at home, Ivan is satisfied (his parents kissed both him and the brand new TV). With a payment schedule in hand, he went to pay at the cashier for three months. Suspicions came after the third payment, when he finally bothered to calculate the remaining amount. It turned out that the “golden TV” cost Ivan 72% per annum (!!!). To my question - where did you look when signing? - I did not hear anything intelligible. And after all, there is nothing to blame the Horn and Hoof Bank (the name was changed in order to prevent advertising or anti-advertising). The loan agreement says in black and white - 72%. Where did you look and what did you think? Apparently in the neckline of the blouse.
The case ended in early repayment (provided by the contract). Thus, a simple manipulation.
A small course in the theory of economics and banking
All the action takes place in one specific trade pavilion, so to speak, without leaving the checkout. The client draws up a loan agreement, the bank pays the price of the goods to the store, and then the relationship between the client and the bank goes according to the signed one.
Banks receive funds for lending as follows:
- raise money from the Central Bank of the country (at the refinancing rate)
- attract money from the population (at interest on the deposit)
- borrow money from banks of another country, or international credit organizations (the percentage of borrowing depends on a specific country and organization. Eg: EBRD).
Hence, it is easy to guess that the interest on the loan will be much higher than the interest at which banks themselves borrow funds. For example, if the refinancing rate is 11%, and the rates on deposits are on average 10-15%, then it is easy to realize that you will not receive a loan below the indicated interest amounts in principle. This is, in general.
Such credit schemes are very common in large retail chains working in conjunction with banks that are actively lending to buy goods in these networks. Often, these trading giants themselves establish small banks or work on a contract basis (a fraction of the percentage charged to the borrower). This is in fact.
"Commission 0% when applying for a loan" can be only if the store itself credits. But this will already be called deferred payment. This is basically.
The simplicity and at the same time the genius of the scheme lies in our carelessness, and sometimes just negligence when concluding contracts. There are several models of behavior of consultants when drawing up a loan agreement on the spot:
- A quick listing of all the "advantages" of the loan, the speed of processing, etc. At the same time, palming a pile of documents without giving the client a chance to come to his senses or think. Tips for choosing the longest term ("there is a difference of a penny").
- Image of haste (“Val, let's get a bunch of clients faster / closing soon!”). Again, a pile of papers, half-bent documents exactly where to sign …
As a conclusion
How many times have we heard and seen all this on TV? How many laughed that “I’m not so pricked”? And, in fact, it turns out the opposite. We want the best, with pure motives, but we get it as always. You should not think that you are very perceptive, at the trainings of the consultants they have been taught for a long time to beautifully “vparivat” the goods so that later you will not be able to remember how you agreed to this adventure.
See what you sign, ask to show the rate, recalculate payment schedules, ask for a copy of the contract “at home”. If the bank has nothing to hide and has no desire to deceive you, it will certainly patiently and meticulously explain and tell you everything, give you a look and count. For any serious bank, reputation is more important than immediate profit!
Pretending to be “I have money, I don’t care what percentage” is stupid. If you have money, why do you go on credit?
As a matter of fact, the money, of course, is yours and it is up to you to dispose of it, but to make such gifts to the bank, as in the story of my friend, is at least stupid. Better buy a cache and wash in a bar, restaurant or sauna. The benefits of memories and impressions will be much greater.
