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What are credits? Interesting facts about first loans, collateral, and interest rate

What do you do when you really want something, but you don’t have enough money to buy it right now? That’s right, you can apply for a loan or more simply – borrow money, which will allow you to carry out your plans and pay off the borrowed amount in installments over a fixed period of time. The habit of “borrowing” money arose many years ago before our era, back in Babylon, Egypt, and Assyria, where the first mentions of loans and creditors were attested.

The idea of CREDIT, which translates from Latin “I believe” or “I trust”, came with the desire of merchants to buy more goods than they could afford with the money they had with them. Thus, the first specialized credit institutions appeared. Their methods of work were almost identical to the current lending process: a bank or non-bank lending institution offers you the money you need, asking for INTEREST in return, and as a guarantee that you will return the money on time, something is taken as a COLLATERAL. Plain and simple – you just need to know the payment options, be able to calculate the total cost of the loan, and make your monthly payments on time.

Interest: an explanation for everyone

The formula for a loan is simple: you get the money and then you have to pay it back. In addition to the amount you borrow, you pay a percentage, called interest, for using the money when you need it. In general, interest depends on three important factors: the amount credited, the repayment period, and the rate. Interest rates can also be of two types: fixed (which remain unchanged throughout the credit period) and variable (depending on the evolution of the benchmarks).

When we talk about interest, we also need to know what the APR (effective annual percentage rate) means, or more simply what is the total cost of the loan. The APR contains both the interest rate and additional costs (other commissions and fees). It would seem that it sounds complicated, but in fact, you just need to capture the essence. In addition, lending experts are obliged to explain to you every step and calculation, but also to ensure that everything is clear to you and you do not have unresolved dilemmas.

Why do you need collateral when you take a loan?

When a bank or NBCO grants a loan there are certain risks, that the borrowed money will not be refunded. As a guarantee that the credit will be paid in full and on time, something is taken as collateral. The subject of the collateral can be various goods, depending on the amount of the loan. For example, in the Kwakiutl Indian tribe, there was an interesting custom: when someone took a loan, he pledged his… name. Thus, no one of the inhabitants called him by name, until he paid off the debt in full.

While we’re talking about collateral, there are few “strange” things some banks are ready to admit. For example, a bank in Italy receives Parmesan cheese as collateral. The reason is that in case of non-payment of the loan, this famous cheese will be very easy to sell. Credit Municipal de Paris is ready to take … collectible drinks as collateral. This option turned out to be successful from the very first days, the warehouse of the bank was filled with all kinds of expensive bottles.

A “responsible” credit will only bring you benefits

Credits are absolutely essential for the modern world because few people can afford to buy expensive things such as a house, a car with cash or to start a business that requires permanent investment for development and expansion. In this situation, it is necessary to take some correct steps to turn the loan into a situation from which we can only benefit:

  1. Choosing the right credit (personal needs, business, agro, auto) – each has rates and interest suitable for the respective situations;
  2. Determining the amount of money we need and the purpose of use;
  3. Calculating individual payment possibilities and total loan price;
  4. Collaborating with a responsible lender who will fully understand you and provide you with the best solution.

By the way, at Microinvest we offer loans for hardworking people to achieve their goals and ensure a nice and comfortable life.