How to get a loan from a bank with no undesirable outcomes

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);
• 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.