Any kind of lending decisions must be weighed carefully. Be certain you will be able to fulfil the obligations you are going to take.
Loan agreements are divided into the following:
- loan agreements secured by a mortgage, i.e. when real estate has been pledged as security for the loan;
- small loans secured by surety and/or proven on the basis of income;
- overdraft or various credit cards and charge cards, incl. payment cards offered by department stores;
- SMS and other quick loans, which can be applied for without any kind of security.
Since 1 July 2011, the lender shall, before the contract is entered into, give the consumer a detailed information sheet, whose goal is to introduce the principle of responsible lending and increase the lenders’ duty of care. An information sheet will not only be provided with bank loans or quick loans, but also with various purchases paid for by instalments, with credit cards etc.
What is the information sheet provided by the lender
The obligation of providing an information sheet concerns all loans. It must be presented in writing (or in a format which can be reproduced in writing), ensuring proof in case of potential problems. The information sheet must be presented before entering into a loan agreement, so that it would be possible for the consumer to familiarise him-/herself with the information beforehand.
The information sheet shall include:
- size of the loan sum;
- annual interest rate;
- annual percentage rate of charge;
- in case of a schedule of payments, the size of a monthly payment;
- fines for delay;
- all other potential charges added in connection with the arrears.
There is no obligation to provide an information sheet in case of:
- an employer giving its employees a loan that is smaller than commercial interest rates;
- loan given by a credit institution or an investment firm in order to perform a securities transaction;
- loans secured by a possessory pledge (pawn shops).
The more important changes brought about by the information sheet:
- contracts no longer needs to be entered into in writing; a format which can be reproduced in writing is sufficient (i.e. it can be entered into over the Internet, provided that the consumer has access to the terms and conditions at a later time);
- contracts become more thorough and informative – e.g. the calculation of the annual percentage rate of charge is clarified;
- the right to withdraw from a contract is extended to 14 days from the previous 7 days;
- the procedure for refunding the money before the prescribed time changes and shall also cover contracts secured by a mortgage;
- in loan adverts, calculation of the annual percentage rate of charge must be clarified by means of an example;
- at the consumer’s demand, the lender shall, in addition to the information sheet, also provide a free copy of the draft agreement;
- in connection with the loan enterprises’ greater duty of care, being granted a loan may become more difficult or even impossible, as lenders will be more thorough than before in inspecting the background and solvency of the borrower.
Obligations of the consumer
Although the lenders have a significantly greater duty to evaluate the solvency of the borrowers and inform them of the related risks, the consumers themselves are obligated to:
- adequately evaluate their solvency, considering all their monthly expenses and informing the lender thereof;
- read the terms and conditions of the agreement and clarify them, if something seems vague;
- understand the consequences of their inability to pay back the loan;
- in case of experiencing solvency problems, communicate with the lender; do not avoid communication and ignore the situation;
- if necessary, consult a debt counsellor.
In addition to several other lending options, quick loans (or SMS loans) may seem an especially easy solution. An SMS loan may look like a tempting way to get a loan without even paying a visit to a bank office or connecting to the Internet.
Unfortunately, there are certain risks for the consumer in case of readily available loans – the decision to borrow is made too offhandedly, no attention is paid to the final cost of the loan, no consideration is given to whether taking the loan will alleviate the borrower’s financial situation or, in fact, make it more difficult. SMS loans are advertised as a fast and easy way of getting a loan. In reality, however, it is the fact that the loan is given quickly and easily that tends to pose the biggest threat. The consequences may be dire, if people are able to take out a loan as fast as the idea was formed, without even needing to go to the Internet (as is the case with one quick loan provider).
If you have trouble paying back a loan, do not wait until the problems worsen. Seek help immediately after you first experience difficulties. Turn to the lender (bank, loan association, private person etc.) to agree on a break from paying the loan or on a manageable payment schedule. Advice and assistance can also be sought for from debt counsellors.
More about loans can you read at home page of Consumer Protection Board.
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