People with a lack of their own funds use financial institutions services. As a result, lending in the country is growing from year to year. Whether it is good or bad when you need to take a loan, and when you can do without it everyone decides, of course, for himself. However, there are general recommendations, following which you can avoid unpleasant consequences in the future. After all, even a small loan is primarily a financial obligation, which cannot affect the quality of life.

Defining loan objectives

Loans are non-earmarked when the lender issues a certain amount for various needs of the borrower. Earmarked loans are for purchase of real estate, land, education, medical treatment and more. There is a difference in the loans in terms of maximum loan amount, interest rate, loan period, loan with collateral or unsecured loan.

You should decide for yourself whether you need a loan. Can you do without it? Remember that a loan is primarily an obligation that you, as a borrower, may need to fulfill over a long period of time.

If you decide to take a loan, you must be sure that you can return it within the timeframe stipulated in the bank loan agreement.

Analysis of existing loan terms

Do not rush to apply for a bank loan without making a market research and trust in tempting advertisements. It is necessary to monitor the sites of second-tier banks in which you would like to apply for a loan and analyze their loan products. Having chosen the best option, check with a bank manager all the lending conditions: loan amount, terms and re-payment amount, any fees to obtain a loan or early repayment fee, total cost of the loan with all interest and payments, how much the overpayment will be and other important issues. A potential borrower needs to know that before concluding an agreement, the bank is obliged to provide full advice to the client on all issues that have arisen, as well as information on the bank loan term and interest rate, that is fixed and floating. Also, a bank manager must indicate the size of annual effective remuneration rate at the date of the client's request. The annual effective interest rate (usually abbreviated as AEIR) is the total of all payments paid by the borrower under the loan agreement.

The loan repayment methods are differentiated and annuity

• The first (differentiated) implies unequal monthly payments which are proportionally reduced over the loan term. The monthly payment decreases every month due to the fact that the principal debt is repaid in equal installments, and interest is charged on the remaining debt.
• In the second case (annuity) we are talking about equal monthly payments stretched over the entire loan period. The debt is repaid in equal installments throughout the entire loan period. The payments on the principal debt are increasing, while payments on remuneration are decreasing.

In order to increase transparency, a new form of instruction is in effect from the year of 2020, with is delivered by bank manager to the client before concluding a bank loan agreement.

The instruction contains the following information for the borrowers:

• loan amount and currency; loan terms; number of payments;
• interest rate types (fixed or floating), interest rate in annual percentage or in a fixed amount; interest rate in reliable, annual, effective, comparable terms; name and amount of fees and other payments related to the issuance and servicing of the loan;
• total debt amount to be paid;
• total amount of remuneration;
• forfeit (fine, penalty) for late repayment of the principal debt and remuneration;
• other types of penalties, late payment fee, in accordance with bank loan agreement terms (including for loan non-earmarked, untimely signing of insurance agreements, and so on);
• the need to conclude an insurance agreement and its prolongation period;
• bank contact information (phone numbers, e-mail address, bank website address).

You should be aware that loan terms mentioned in the instruction are indicative in order to you would be informed and able to compare the loan terms of other banks. The final requirements are specified in the agreement. Therefore, before signing the agreement, you need to re-read it several times. As practice shows, most of the enquiries from consumers of financial services are connected precisely with the fact that citizens do not attach importance to the bank loan agreement, signing it without studying all the points.

The bank loan agreement, in addition to the instruction, is also accompanied by a title page, the format of which is the same for all banks.

The title page contains information about:

• the amount and terms of the loan;
• the remuneration rate;
• the annual effective interest rate;
• methods and modes of repayment;
• the borrower's right to partial or full early repayment of the principal debt, which is regulated by a corresponding application to the bank;
• the amount of the forfeit (penalty, late payment fee) for violation of obligations under the agreement.

Assessing your capabilities

Let's say you have decided on the purpose of the loan, and, in your opinion, it is justified. You have chosen a bank, a specific loan offer. The next step for you should be to assess your own financial condition and solvency. Ask yourself the question: "Will you be able to pay the loan if you suddenly lose your job or suddenly get sick?" You should only rely on a permanent source of income and think about tomorrow. The monthly payment on your loan obligations should not exceed half of your income. Only in this case you will be more or less confident in a timely repayment of the loan.

Remember that non-payment of the loan threatens that the bank will be obliged to send information to the credit bureaus about the default on your obligations. And this information will certainly be reflected in your credit history. If the loan was pledged by collateral, then the pledged property of the debtor can be sold out of court or through the court. Also, the creditor can issue a payment request if this measure is stipulated in the agreement, and without the additional consent of the debtor, a certain amount will be debited from the debtor's bank account. In addition, the debtor may be included in the list of citizens who are restricted from traveling abroad by order of the bailiff. This document on temporary restriction on the debtor's departure from Kazakhstan is subject to court approval.

Remember, a loan is a big responsibility and an inattentive study of the terms of the agreement, a disdain for the fulfillment of your loan obligations and an overestimation of your solvency can significantly affect your usual way of life, up to the occurrence of a stressful situation for you and your loved ones.