Term loans are very practical. You can give an unexpected gift to a loved one or pay for car repairs. Is this wise? If you don’t know whether you should take out a loan, read this article.

Answers to the top questions about loans

Where to take out a loan? How to avoid illegal organisation?

Loans are issued by microfinance organisations. They are divided into microfinance and microcredit companies, which differ in size and maximum loan amount. All of them operate legally and are registered.

If a company issues loans illegally, it has no right to bear the name of a microfinance organisation. However, there are offices in the market that pretend to be such campaigns but are actually illegal lenders. These companies issue money at inflated interest rates, charge huge fines for late payment and use illegal methods to collect money from debtors.

To avoid falling into the hands of an unreliable creditor, check the company’s registration.

How much money you can get and for how long

There are two types of loans:

• Microloans for small amounts and short terms;
• Large loans for larger amounts and longer terms, up to 2 years on average.

Almost any borrower can get a loan – there are minimal checks, so the chances of approval are high. The process of obtaining a large loan is more like applying for a consumer loan: the microfinance organisation is likely to check your credit history and may also ask you for collateral.

When and how much will I have to pay?

A loan is usually repaid in one instalment with interest at the end of the term. Larger loans are repaid monthly or fortnightly.

If you plan to repay the money quickly, within 7-14 days, you can use an interest-free loan. Many microfinance organisations offer this service to their new clients.

If you miss the repayment deadline during the interest-free period, you will be charged interest not only for the days of delay, but also for the entire period, including the interest-free period.

I need a loan on my card. Can I apply for it online?

Yes, loans are usually granted online. To do this, you just need to leave an application and confirm your identity.

When you need a loan agreement

When you apply for a loan, you sign a contract. If it’s an online loan, important agreements may be hidden in the ‘I accept the terms and conditions’ clause. Make sure you find the contract and familiarise yourself with its contents before you get the money.

Is it necessary to request a loan? It depends on the situation

Credit is a useful service if you need money urgently for something you really need. You should always remember not to abuse this opportunity.

In what cases can I request a term loan?

• Medical emergencies. Buying medicines, tests, paying for procedures and surgeries are things you can’t put off.
• Pay your bills to avoid fines. Are you facing a fine for not paying a bill? Credit can help you avoid unnecessary expenses. But only if the penalty exceeds the amount of the overpayment on the loan.
• Urgent repairs. If your refrigerator breaks down or you need to repair your car, you can take out a loan.
• Urgent family emergencies. Funerals, various unpleasant situations of loved ones and other important expenses fully justify asking for a loan.
• Ongoing expenses up to your salary. The loan will allow you not to change the usual rhythm of life and, in all likelihood, you will be able to repay it before the end of the interest-free period. This is a sensible decision.

When you should not apply for a term loan

• Buying fashionable things. If you can live without something, you should not buy it on credit. If the purchase turns out to be too expensive for you, it will lead to financial problems anyway. The ideal option is to buy it later with your own money.
• Investments with unpredictable returns. Gambling and investments with unrealistic returns carry a huge risk of losing all investments. It is highly undesirable to borrow money for such purposes.
• Payment of credit. Taking out an emergency loan to pay off other debts only worsens your financial situation, but only if the interest on the loan is higher than on your previous loan or credit card. If the loan is interest-free and you have a salary coming in soon, you can take advantage of this service.
• Ongoing expenses if your salary has been delayed. Taking out a loan is fine if you know for sure that you will be able to pay it back. A delayed salary is a sign of financial instability, so there is no guarantee of repayment.