Traditional forms of financing
The mutual
A mortgage is a contract whereby a bank (lender) hands over a certain amount of money to a person (borrower), and the latter undertakes to repay the same amount plus interest agreed upon in terms of rate and duration. A mortgage is thus a medium- to the long-term loan granted by a bank or other authorised financial institution, repayable according to the amortisation schedule defined in the contract.
Mortgages and amortisation plans are divided into fixed-rate and variable-rate loans. The former requires the borrower to pay the same interest throughout the contract term, while variable rates are based on the monthly development of interest rates.
Mortgage loan
All mortgages with collateral in the form of a mortgage are included in the category of mortgages, thus including land, renovation or construction loans, liquidity loans or consolidation loans.
Land loan
The mortgage loan entails constraints compared to mortgages, both in terms of the type of mortgage and the amounts possible. For example, the mortgage used as security must obligatorily be of the first degree, and the maximum financing percentage, except in the case of additional safety (such as a life insurance policy), cannot exceed 80% of the lower price and sale value of the property being claimed.
Building mortgage
The mortgage is registered on the building plot and will cover the completed property.
A subdivision application is made if the property is sold in several units. Construction mortgages are usually issued in tranches and not in a single transfer, following the levels decided on the progress of the work.
This feature influences further appraisal and appraisal costs due to other necessary actions, always agreeing that the sum financed is equal to that stipulated in the loan contract.
Unsecured loan
An unsecured loan is not backed by a mortgage and involves deferred payment instalments.
Fixed-rate
The rate and the amount of the instalment are defined when the loan is granted and remain unchanged throughout the loan.
Variable rate
The rate and instalment vary periodically depending on the development of the indexation parameter (EURIBOR 1M or ECB MRO).
Mixed or variable rate
The mortgage rate can be changed at the pre-established dates and for the number of times stipulated in the contract, which was initially specified at a fixed or variable rate.
CAP rate
The stipulated variable rate has a predetermined upper limit (CAP) beyond which the rate cannot rise regardless of where market rates go. In this case, an additional spread is paid on the regular variable-rate mortgage.
Balanced rate
Not all banks offer the opportunity to create a mix between fixed and variable rates with the possibility of defining the weights distributed over the two options.
Consumer credit
The law defines consumer credit as ‘the granting, in the exercise of commercial or professional activity, of credit in the form of a deferred payment, loan or other similar financial accommodation to a natural person acting for purposes outside his trade or profession. This definition covers all credit granted by professionals (banks or financial institutions) to consumers or persons working as such.
Consumer credit is a loan that an individual may apply for only for personal needs concerning private and family life because it is intended to cover consumption and current expenses. Therefore, all forms of credit for conditions relating to professional or business activities are excluded from consumer credit. You must prove that you can repay the amount borrowed on time to obtain it. This ability to repay is called ‘creditworthiness‘ and is assessed by the lender before granting the loan. Consumer credit can be requested from lenders, i.e. authorised banks and finance companies.
Consumer credit includes various forms of financing. The most common are as follows:
- Non-financial loan;
- Finalised loan or ‘linked credit’;
- Credit opening on a current account;
- Revolving credit card.
Non-purpose loan
Non-financial loans include:
- Personal loan: granted to meet general liquidity needs. The lender pays the sum to the consumer in one lump sum, and the consumer pays it back in instalments. To protect against non-repayment, the lender may require personal guarantees such as a surety and/or an insurance policy.
- Assignment of one-fifth of salary or pension and delegation of payment: public/private employees and pensioners can repay the sum borrowed by assigning up to one-fifth of their salary or pension to the lender. In this case, the employer or social security institution deducts the instalment from the salary or pension and pays it to the lender.
Targeted loan or linked credit
A particular purpose loan or ‘linked credit is a loan related to purchasing a specific good or service to be repaid in instalments. The consumer can also obtain it directly from the seller, who has an agreement with one or more banks or finance companies and usually handles the file on their behalf.
Current account credit opening
The bank makes a sum available on the customer’s current account for a predetermined maximum amount. For making the sum available, the customer pays the bank a fee, while on the aggregates used, he only pays the interest specified in the contract.
When the customer returns all or part of the sum used, with interest, it will be available again and can continue to be used.
Revolving credit card
With a revolving credit card, the holder has a payment instrument at his disposal and receives an actual loan, which he can use to make purchases directly from sellers or withdraw cash. The loan is repaid in instalments and with interest at a variable rate. The card can be used up to the lender’s maximum limit (ceiling). Each time the sum used (capital share) is repaid through instalments. This sum can be spent again using the card.
That is why the card is called ‘revolving’.
Web 3.0 and Artificial Intelligence
