Easy Beginner-friendly Guide to Bank Credits

Understanding finances and bank credits can be a little overwhelming for some people. They might not be familiar with what a financial institution can do for an individual or a business.

Also, they might have never been in a position where they needed to borrow money. In any case, it’s good to understand the basics of loan approval requirements, credit scores, and the different types of bank credits. Read on to learn more about them with our easy and helpful guide.

Easy Beginner-friendly Guide to Bank Credits

What Is Bank Credit?

Bank credit is the money that you’re legally able to borrow from financial institutions. Each individual or business has a specific amount of bank credit available, and it varies depending on the business or person’s ability to repay the money they’ve borrowed. Also, it could be based on how much credit the institution has at the time. Each type of bank credit has specific terms and conditions. The interest rates and fees are different for each borrower, too.

How Do I Apply for a Loan?

Applying for a loan can be done either by physically going to the financial institution or the loan provider and then filling out the application. Most loan providers will conduct a small interview with you to understand your situation. Also, you can easily apply for some loans by phone or online. This can be done anywhere in the world, even if you’re living in Southeast Asia. The most common loans available are personal loans and the Singapore personal loan application can be filled by phone, online, or by visiting the lender’s office, and you can choose a plan that can be customized for your needs. After you go through all the details, read the terms thoroughly,  agree to the conditions and requirements, you can sign everything at the end to finalize the deal and make it official.

Types of Bank Credit

You have two types of bank credit available to you: secured or unsecured bank credit. The secured type means that your loans will be tied to a house, a car, or any type of property. It will be the collateral for the lender if you, the borrower, default on your payments and can’t repay the loan. This means that they will automatically confiscate the property to make up for the payments you couldn’t deliver. The unsecured type means that any loan you apply for will not have collateral and the financial institution or lender can’t take any of your properties. Instead, if you default on your payments, the lender may hire a collection agency to collect the debt or take you to court.

types of bank credit

How is Credit Approval Determined?

Financial institutions and lenders determine credit approval based on several factors. This is important because this is how lenders go through the approval process to check your creditworthiness. They will look into your credit history, your credit score, your employment status, your monthly income, the properties or assets you own, and your debt- if you have any. They will see your credit history and how you paid your previous loans.

If all checks out and your credit score is decent, then you will have great bank credit and low-interest rates for your loans. However, if your credit history isn’t appealing and your score is low, they will see that you are a risky applicant. This means that they will perceive you as someone who will most likely not repay what’s owed to them after the loan, and they will either reject your application or charge you higher interest rates or collateral.

How to Build Credit History?

The biggest problem that young people face is that they don’t know how to build their credit history. They need to have a track record of the money they borrowed and the money they’ve paid back to get good loans. One of the easiest ways to do that is by applying for credit builder loans. These loans aren’t funds that you take instantly; the funds are deposited into a savings account, and you will repay the monthly installments with interest. After the specific time of the loan has passed, you can take your money. This is great because by that time you would have a decent credit history if your payments are done on time.

Young people have a difficult time when it comes to finances, credit scores, and loans. For starters, their credit history is almost non-existent because they didn’t get a chance to do many transactions or pay any debt yet. Also, the younger generation has little to no knowledge of the types of back credit, or even how financial institutions approve loan applications. Hopefully, this guide can be of help to anyone who is struggling with understanding bank credits.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan