A loan is a sum of money that you borrow from a bank or credit company and is then obliged to repay. However, lending money is not a charity and lenders pay in the form of interest on the loan. This is a percentage of the loan that becomes an extra expense for you when you borrow money.
What is a loan?
There are different types of loans with different advantages and disadvantages, different interest rates and different terms with lenders. This article will focus on guiding you through the jungle that is borrowing money.
Why borrow money?
For many, borrowing money is the only way to, for example, be able to buy a house for the first time or study at a university abroad. You never have to borrow the full amount of what you intend to buy. For example, if you can afford to pay three-quarters of the villa with your own funds, you can borrow a small amount of money for the remaining part to reduce the risk to yourself. A good rule is to never borrow more money than you need. A loan always involves a financial loss for yourself because of the interest rate and should only be considered if it is the only way out. You should always think about whether you really need a loan, if it is worth it and if you can save money for it instead.
However, there are some who take this risk and lend money to be able to invest in shares so as to hope to make money in the end. If the stock market goes down you can easily stand there with a much higher loan amount than you initially had. An alternative to this is to invest a small portion of the sum, perhaps 10-30% in shares that you consider safe. Whatever motives you have, you should always carefully consider your situation before you take out a loan.
How to borrow money?
In addition to visiting banks and credit companies in person, you can also borrow money online, which is a relatively quick process. To be eligible to borrow money, you must be over 18 years old. In addition, with many lenders, you need to have an income, no payment notes and no debts lying with Kronofogden, which is the authority that handles this. Lenders are interested in your ability to pay, which is called credit worthiness, which will be explained in detail later.
Different types of loans
There are a number of different loans to suit different situations. It is therefore important to know what the different types mean and why some are better suited than others for your particular situation.
With a private loan, the total amount is usually SEK 500,000 and you can use it completely without collateral. You choose which installment plan you want and this can be set between 1 and 15 years. Remember to have an achievable goal when setting the loan repayment period. Since this is a bank loan with no collateral, you do not need to tie up assets that act as a guarantee if you are ultimately unable to repay everything. The interest rate for borrowing money without collateral is thus high for lenders to dare to take the risk.
Mortgages provide a very low interest rate and a long repayment period compared to private loans. However, they are usually more difficult to draw. A home loan is secured by collateral, which means that your villa is a guarantee to the lender if you are unable to repay the loan. Your home can cover 85% of the loan and the remaining part you pay with a cash deposit. Under the agreement, you may have to sell the house if you cannot cover the cost in any other way. Mortgages have high setup fees compared to private loans and thus you should only choose them if it involves large sums of money.
If the mortgage is 70% higher than the market value of the home, you can repay two percent annually. Private individuals who take out a mortgage loan that is 4.5 times higher than their annual income may repay an additional one percent. If you have a mortgage that is lower than 70% of the market value, but over 50%, you can repay one percent per year.