Information on the risks of over-indebtedness Bank Credit
Most of us, sooner or later, will inevitably face the need to temporarily spend more money on our plans than our existing savings and monthly income allow. Hiring a loan can help you reach your goals faster.
However, before making credit decisions that often last for several years, or even decades, for mortgages, it is worth taking the time to consider the risks. If we take out more credit than is justified by our financial capacity to pay, the likelihood that we will not be able to repay the loan in full will increase. In this case, we may suffer a very serious financial disadvantage.
Be sure to take the time to read this brief information, and to learn and consider the risks involved in borrowing.
What are the risks of borrowing?
When borrowing, the principal risk to the customer and the bank or other financial institution providing the loan or the leasing service (hereinafter the lender) is that the borrower is unable to repay the loan. This can occur when there is a significant, unfavorable change in the loan repayment installment and / or in the debtor’s income and living conditions. If the debtor is in default of payment of the installments, the lender may terminate the contract and request payment of the debt due in one installment, as the borrowed amount shall be repaid together with interest and other charges specified in the contract.
After the termination of the contract, the creditor has several options to enforce his claim. Thus, if the debtor has badly assessed his repayment ability and is over-indebted to his financial means, he may forfeit the loan assets and, in the case of his residential property, his housing may be in danger.
It should also be borne in mind that the debtor often bears the costs of late payment and enforcement, which are often considerable. If the sale of the property does not cover the amount of the debt and other related fees and expenses, the debtor is still liable for payment.
In addition, if the debtor has more than 90 days’ overdue minimum wage, his or her data are included in the Central Credit Information System (KHR, formerly commonly known as the BAR list), which significantly complicates or often excludes the possibility of later access to credit.
It is very important that you make a realistic and prudent judgment of the borrower’s future repayment ability when borrowing, and only take out a loan that you can safely repay, even in the event of unexpected expenses, a fall in income or an increase in the installment!
The installment may increase!
The borrower and the interest thereon must normally be repaid monthly by the borrower over a specified period (the term of the loan). The loan can be fixed or floating interest rate over the term. In the case of a fixed rate loan, the transaction interest rate remains unchanged over the maturity period, regardless of whether market interest rates rise or fall. In the case of a variable rate loan, the interest rate may change during the term. If the interest rate rises, the installment will increase. The longer the maturity of the loan, the greater the repayment installment increases in the event of a similar rise in the interest rate.
There is a similar relationship between the amount of the loan and the interest rate increase, but with a higher loan amount, the same interest rate change results in a larger change in installments. For some schemes, the maturity increases instead of the installment payment, which creates an additional obligation to pay the installment. The change is the so-called. for loans with interest rate period only occurs after the given interest period (eg quarter, semester).
The repayment installment of foreign currency-denominated loans may be significantly influenced by the HUF / FX exchange rate as well as the changes in the foreign currency interest rate. If the exchange rate changes, the repayment installment changes in the same way: for example, a 10 percent depreciation in itself means a 10 percent installment increase – with all other factors (interest, management cost) unchanged.
Before borrowing, carefully review the terms of your loan, paying particular attention to what other costs you may incur on installments, what interest rate is used for a variable rate loan (eg reference rate), and how often (eg monthly, quarterly) , yearly) interest rates may change!
Your repayment income may drop unexpectedly!
There are several reasons why your income for repayment may decrease. Repayment of a loan is significantly more difficult if the income of the debtor or his household is reduced, he may lose his job or unexpected expenses occur. It is advisable to build up a reserve that will allow you to maintain, for You can continue to repay the loan for 6-12 months. During this time it is possible to find a new job, renegotiate the terms with the lender, and pay off installments due to temporary unfavorable changes in the money market.
Before borrowing, think carefully about how much of your income you can use to pay off, even in the event of an unexpected event, and if you have any reserves to cover it in the event of a loss of income!
If you are in difficulty, contact your lender as soon as possible to arrange for a rescheduling of your contract!
Keep in mind that you can easily go into debt and pay off more and more debt by getting another loan that is increasing in burden!
How much installment can I take in consideration of the risks?
To determine the amount of credit that can be borrowed, first of all, calculate the income available for repayment. Think about how much of your household income you can use to repay the loan, and how long you can count on each income. If you have more than one credit, the installments of these must be added together. Do not base your planning on a lower starting installment! Choosing an installment that is reasonably low in relation to your disposable income can significantly reduce the risk that you will be unable to repay your loan.
Depending on the expected long-term income and the currency of the loan, it is recommended that you observe the limits set out in the table on the next page when borrowing. Of course, the lender may impose stricter conditions when assessing a loan.