Bank gives you money tips and advice
The purpose of this site is to provide clear and objective information on the subject of borrowing. First of all we provide an overview of some basic concepts, such as credit, interest, repayment and duration. Then we look at the most common types of loans: collateralized lending, personal loan, revolving credit, standing in red, installment purchase, hire purchase and lease.
Borrowed money, but I cannot pay back!
Unfortunately, people sometimes get into trouble by taking out (too many) loans. We therefore first look at the stages that are followed when debts arise. Then we describe the options for debt mediation and (if things really went wrong) debt restructuring.
We then pay attention to a few lenders where you can go for loans; the BKR or Bureau for Credit Registration in Tiel; the possibility to borrow without BKR testing; and the tax aspects of borrowing.
NB: as stated, the site contains objective information about borrowing; we do not offer loans ourselves. If you want to take out a loan, you can go to all kinds of financial intermediaries, which we show on this site by means of banners. It can be worthwhile to compare the conditions of different providers well!
Borrowing on the basis of collateral is often cheaper than taking out a revolving credit or a personal loan. That has a simple reason. When there is collateral, lenders have more certainty that they will eventually see their money again, and in the financial world it simply applies that the requested reward (interest) is closely related to the risk to be taken
Forms of collateral
There are different types of collateral borrowing. By far the best known and most common is the mortgage; however, this subject is beyond the scope of this site. Other common forms of collateral are life insurance and securities.
Loan of a policy
It is often possible to use a life insurance policy as collateral for a loan (if there is no annuity clause on the insurance and the insurance is not part of a life mortgage). How much you can borrow in such a case depends on the surrender value of the policy.
Those who own shares or bonds will often be able to use them as collateral when taking out a loan. (A special case of this is the securities credit: the securities already held are used as collateral to finance the purchase of new securities.)
The personal loan (also known as PL) is a form of descending (mostly consumer) credit for private individuals that came up at the beginning of the 1960s. Unlike with a revolving credit, with a personal loan the amounts already repaid cannot be withdrawn.
With a personal loan, the borrower borrows a certain amount, at an agreed interest rate that does not change during the term of the loan. A big advantage for the borrower is that he knows exactly where he stands. The repayment of a personal loan takes place in equal (monthly) installments. These consist partly of repayment and partly of interest. The main lenders offering personal loans are the financing companies, followed by the banks. The provision of personal loans in the Netherlands is currently regulated by the Consumer Credit Act.
Benefits of a personal loan
A personal loan is in many cases a relatively attractive form of financing. Firstly, the interest is often much lower than with other forms of credit. The interest, the duration and the installment amount are also fixed, so that the borrower is not confronted with unpleasant surprises.
Moreover, this fixed term can be adjusted to the economic life of the property to be financed. Personal loans usually contain “built-in” coverage against the death risk: if the borrower dies, then his debt (sometimes: up to a certain maximum amount) is waived. For older people it can be difficult or even impossible to get a revolving credit. Especially if they have no collateral, the personal loan is often the preferred form of financing for them.
The revolving credit is a form of financing in which, unlike a personal loan, it is possible to re-take amounts already repaid. The term of a revolving credit is variable in practice, so that the borrower can flexibly withdraw and repay money. A theoretical term is set when the loan is taken out, but it does not have much practical significance because of the assumptions underlying it.
Other features of the revolving credit are:
- The duration is variable
- The interest is also variable
- The installment amount can change
- Early repayment (without costs) is possible
The lender and the borrower agree on a credit limit or credit limit: the maximum amount that the borrower can borrow at any time. However, it is up to the borrower to determine how much he or she actually wants to borrow, as long as the total amount remains within the agreed credit range. A borrower can withdraw the full amount immediately upon commencement, but it is also possible to do so in a number of steps. In addition (as already indicated above) already repaid amounts can be withdrawn
The term of a revolving credit is variable in practice, so that the borrower can flexibly withdraw and repay money. A theoretical term is set when the loan is taken out, but it does not have much practical significance because of the assumptions underlying it.
- The credit space is fully utilized immediately upon commencement
- The interest rate does not change during the term
- The borrower does not make additional repayments
- The borrower does not follow up
- The installments are paid on time every month
However, it may be clear that these assumptions are usually “in conflict” with the specific (flexible) nature of the revolving credit! If the interest rate changes, with a “variable revolving credit” both the installment amount and the term of the credit change; in the case of a “fixed revolving credit”, only the term changes in such a case.
The designation “variable” and “fixed” just mentioned for the two types of revolving credit actually relates to the installment amount to be paid. With a fixed revolving credit this is based on the agreed credit limit. Any follow-up withdrawals, extra repayments and interest rate changes have no consequences for the amount of the installment amount. (They do influence the duration of the loan.)
The installment amount for a variable revolving credit, on the other hand, depends on the credit actually taken out. Extra withdrawals and repayments here do have consequences for the amount of the installment amount, just like interest rate changes. Term amounts consist of an interest part and a repayment part. Because the loan is repaid, the outstanding debt decreases with the passage of time. As a result, the term amount also decreases with a variable revolving credit.
With a revolving credit, the borrower always has the option of paying off (extra) early; there are no costs involved (unlike a personal loan or other forms of expiring credit).