When there is not enough money, people tend to get the services from financial organizations. Thus, lending in the country is growing popular each year. Whether it's good or bad and whether one really needs to get a loan or can do without it, each individual decides for himself/herself.

However, there are general recommendations, following which one can avoid undesirable consequences in the future. After all, even a small loan is a financial obligation, which affects the quality of life.

Defining a loan objectives

There can be general-purpose loans when a lender issues a certain amount for various needs of a borrower. And target-specific loans for the purchase of real estate, land, education, treatment, etc. Loans vary depending on the maximum loan amount, interest rate, term, availability of collateral or can be collateral-free.

Decide for yourself why you need a loan? Can you do without it? Remember that a loan is first of all an obligation that you, as a borrower, may need to fulfill for a long time.

If you decide to undertake a loan, you should be sure that you will be able to repay it within the terms stipulated in a bank loan agreement.

Analysis of existing lending terms

Do not rush into getting a bank loan without exploring the market or after seeing a tempting advertisment. First explore the websites 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 terms: a loan amount, terms and amounts of payments, whether there is commission when receiving a loan or for early repayment, what will be the full cost of loan with all interest and payments, how much will be the overpayment and other important issues.

A potential borrower needs to know that prior to conclusion of a contract, a bank is obliged to fully consult him/her on all the issues that have arisen, as well as provide information about a bank loan term and interest rate, which can be fixed and floating. Also, a bank manager should state the amount of an annual effective remuneration rate as of the date of a client's request. An annual effective remuneration rate is the total amount of all the payments paid by a borrower under a loan agreement.

Loan repayment options: differentiated and annuity one.

• The first (differentiated) implies unequal monthly payments, which decrease proportionally during a loan term. A monthly payment decreases each month as a principal debt is repaid in equal installments and interest is accrued on a debt balance.
• In the second case (annuity), we are talking about equal monthly payments stretched over the entire loan term. Repayment of debt is carried out in equal payments throughout the entire loan term. Payments on the main debt increase and payments on remuneration decrease.

In order to increase transparency, new instruction booklets were published in 2020, which bank managers should provide to customers prior to concluding a bank loan agreement.

The booklet for borrowers contains the following information:

• loan amount and currency;
• loan terms;
• number of payments;
• types of remuneration rate (fixed or floating), amount of remuneration rate in annual percentages or in a fixed amount;
• amount of the remuneration rate in a reliable, annual, effective, comparable calculation;
• names and amounts of fees and other payments related to the issuance and servicing of a loan;
• total amount to be repaid;
• total amount of remuneration;
• amount of penalty (fine) for late repayment of principal debt and remuneration;
• other types of fines, penalties, according to the terms of a bank loan agreement (including for misuse of a loan, late registration of insurance contracts, and so on);
• need to conclude an insurance contract and terms of its prolongation; contact details of a bank (phone numbers, e-mail, website).

Note that the loan terms specified in a booklet are provisional and aimed at  reviewing and comparing the terms of a bank loan with the terms of loans from other banks. The final provisions are specified in a contract. Therefore, prior to signing a contract, it is necessary to read it several times. Experience has proven that most of the appeals for financial services are due to the fact that citizens do not give much importance to a bank loan agreement and sign it without having studied all the points.

In addition to a booklet, a front page is also attached to a bank loan agreement, the format of which is the same for all the banks.

The front page contains the following information:

• loan amount and terms;
• remuneration rate amount;
• amount of annual effective remuneration rate;
• repayment options;
• a borrower's right to partial or full early repayment of a principal debt, which is regulated by the relevant application to a bank;
• amount of penalty (fine) for violation of obligations under a contract.

Evaluation of your capabilities

Let's say you have decided on the purpose of loan, and, in your opinion, it is justified. You have chosen a bank and a specific loan offer. The next step for you should be an evaluation of your own financial status and solvency. Ask yourself the question: "Will you be able to pay for a loan if you suddenly lose your job or get sick?". You should only rely on a constant 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 sure of timely repayment of loan.

Remember that failure to repay a loan entitles a bank to send information to credit bureaus about the non-fulfillment of your obligations. This, in its turn, will affect your credit history. If the loan was secured, then a debtor's collateral can be sold out of court or through the court. Also, a creditor may issue a payment request, if this measure is stipulated in a contract, and without the additional consent of a debtor, a certain amount will be debited from a debtor's bank account. Moreover, a debtor may be included into the list of citizens who are restricted from traveling abroad by order of a bailiff. This document on the temporary restriction on the debtor's departure from Kazakhstan is subject to court approval.

If a borrower cannot fulfill obligations under a loan, then first of all he/she needs to contact a bank or the microfinance organization in which he/she has been serviced within 30 days from the date of the delay to restructure the loan with a written application or in any other way that is prescribed in a contract.

In his/her application, a borrower should specify the following:

• reason for non-fulfillment of obligations.
• options for loan repayment in the future.

It is mandatory to attach documents confirming the deterioration of financial condition to an application: this may be information about your financial and social situation and decrease or lack of income, which in its turn does not allow you to fulfill your obligations to the full extent, etc. Failure to submit the requested documents is the basis for refusing to consider a borrower's application.

After a borrower provides all the necessary documents, a bank or a microfinance organization will begin the procedure for reviewing anapplication, taking into account such factors as the current financial and social situation (solvency) of a borrower, uniqueness of collateral housing, and conscientious fulfillment of loan obligations before the onset of delay.

A bank or microfinance organization should provide a response to a borrower within 15 calendar days:

• agree by accepting the proposed changes to a contract terms;
• can provide their suggestions on changing the terms of a contract;
• refuse, but with an indication of a substantiated reason.

According to the legislation, amendments to the terms of a loan agreement provide for the following:

• change that involves decrease in the interest rate under a loan agreement;
• deferral of payment on the principal debt and (or) remuneration;
• change of the method of debt repayment or the order of debt repayment, including repayment of the principal debt in priority order;
• change of loan term;
• writing off overdue principal debt and (or) remuneration, cancellation of penalties (fines), commissions and other payments related to servicing a bank loan;
• independent sale by a mortgagor of immovable property that is the subject of a mortgage;
• submission of compensation in return for fulfillment of obligation under a loan agreement by transferring the collateral to a bank (an organization engaged in certain types of banking operations);
• sale of real estate, which is the subject of a mortgage, with transfer of obligation under a loan agreement to a buyer.

If a borrower failed to reach an agreement with a lender on the terms of loan restructuring, or a lender did not carry out procedures for settling overdue debts and did not provide reasoned justifications, a borrower has the right to apply to the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan within 15 calendar days from the date of receipt of a lender's decision.

Note! A borrower should attach evidence of applying to a credit institution and failing to reach a mutually acceptable solution with it to his/her application. Based on a borrower's application, the Agency will initiate an inspection against a bank or microfinance organization.

Remember, a loan is a big responsibility and inattentive examination of a contract terms, a disdainful attitude to fulfillment of your credit obligations and a reassessment of your solvency can significantly affect your habitual way of life, up to the occurrence of a stressful situation for you and your loved ones.