Loans and Advances

fiogf49gjkf0d

There are two types of loans Secured and Unsecured loans.

A secured loan is a loan which enables you to borrow against some form of security.

An unsecured loan is a loan wherein the customer can borrow up to his net annual income (even joint). If the borrower is able to provide tangible cash security, the amount borrowed may exceed his income.

This is possible as long as the monthly repayments can still be considered feasible to meet over the term of the loan. In any case, before you apply for a personal loan or home loan, you must certainly approach the different banks for some initial information.

You should also evaluate seriously your financial capability, i.e. whether you be capable of paying the loan’s monthly instalments. It is very important that you take into consideration not only your current situation but also your future prospects. You should bear in mind that, in the case of a home loan, you are likely to repay the loan within the next 15 to 30 years. Ideally you should keep a safety margin for unexpected costs.

When you initially approach the bank, the bank official should give the general terms and conditions which are applicable to the particular loan in question. The bank official will also ask you specific questions so that he can draw up a personalised offer capable of reflecting your particular requirements.
You should also be given a generic quotation - indicating the annual repayments/terms and also the documentation required to conclude application. This initial offer will summarise the important features of the personal loan or home loan.

By gathering the different information which the different banks offer you, you will be able to compare the different offers and decide which offer best suits your needs.

Remember: When compiling all the information from the different banks, make sure that you are given an exhaustive list of ALL the charges which the bank will charge you, any notarial and architect fees which you may incur as a result of the bank requesting you to seek their services and a loan repayment schedule. In addition, make sure that you ask the bank if it will charge you any processing fees during quotation stage.

If you opt for a short term loan, you will have higher monthly payments but you will pay less in total. In the case of a long term loan, you will pay less each month but more in total. However, you should not make financial commitments which go past your retirement age unless you are sure that you will be able to afford the payments.

Before granting a loan, the bank will usually need proof of your income. In fact, when you place an enquiry, the bank will ask for a copy of your recent payslip. However, when processing the application for the loan the bank will need a copy of your:

  • FS3 or Profit & Loss Account
  • Self-Assessment Form submitted to the Inland Revenue

The bank may ask you for further information in order to assess your application.

 

No. The Bank will consider various issues before granting a loan.

The bank will grant a loan, only if it is certain that the amount requested can be covered. When the loan is granted, the bank will work out a plan of repayments based on your monthly income to ensure that not only the initial capital is recovered but also that interest is paid.
When issuing a loan, the bank will take into consideration matters such as unemployment, illness, invalidity and death.

Once you are granted a loan, the bank will generally request the client to purchase insurance policies covering your life and the property in question. In the case of a home loan, a home insurance will guarantee payment of the loan in the case of extensive damage to the property. The bank may also require you to extend your policy to include contents. It is important to clarify this point with your bank before taking the loan.

Some banks may also offer you a payment protection insurance. This optional insurance may offer you protection for the outstanding amount on your home loan in the event of sickness, accident or involuntary unemployment, for example. As with all insurance policies, make sure you are aware of the policy’s conditions, especially the circumstances in which you may be able to claim.

The way you choose to repay the amount you borrowed depends mainly on your financial situation and whether or not you are prepared to take risks. In Malta, when a person takes out a basic home loan the monthly payments pay the interest and also repay part of the amount you borrowed (“the capital”). Provided you are punctual with your repayments, the whole loan is paid off by the end of the term.

In case of a home loan, the bank can exercise the right to repossess your property if you do not keep up with the payments on the loan. However, repossession of property is exercised as a last resort.
Before resorting to this measure, the bank usually tries to follow the following procedures;

  1. Bank will ask the customer to settle his/her arrears from an account which he/she may hold with the bank.

  2. Customer may be offered an alternative repayment arrangement to better suit his/her circumstances.

  3. Customer would also be asked to liquidate assets, to reduce the amount due to the bank. The bank can also agree to a repayment moratorium period within which the customer will be able to sell assets/property over a period of time.

If the customer fails to co-operate towards the repayment of the debt, the bank will proceed with legal action to protect its interests.


In the case of a home loan, the bank will define your installments. Therefore, the sanction letter will define the terms applicable in the case of an early repayment.

Home loans, with a variable standard rate of interest, are designed in such a way that there are no penalties or early repayment charges. However some agreements may include a clause imposing a penalty if the borrower sells the property during the first few years to repay the loan. It is very important to pay attention as to when you decide to stop making monthly repayments and pay in full the amount of money outstanding on your loan since there is the risk of incurring penalties.

Once you decide which bank and which loan arrangement best suits your needs, the bank will assist you in the filling of the application form. When this is completed, a copy will be given to you. Once your request is approved the bank will issue a sanction letter. This will be personal to you, so it will include your name and the date.

The document will include the contract's key features:

  • Period of validity for the offer: if the deal is guaranteed to be available for a period of time or if you have to take the loan by a particular date;

  • What you have asked for: type of loan, purchase price of property etc.;.

  • Description of the loan offered by the bank: rates, terms, restrictions, guarantees and security;

  • Overall cost of the loan: tells you how much you will end up paying the bank for the amount borrowed;

  • Monthly payments: amounts and number;

  • Fees: full listing of all the fees to be paid whether legal charges or bank fees;

  • Insurances required: cheap loans may not be so cheap once you have added the cost of insurance covers;

  • Terms and conditions for over or early payments: full listing of all fees or penalties;

  • Additional features: all added extras.

Tip: You should ask your bank what impact a change in the interest rate could have on your monthly repayments. For example, if after some time you have taken a loan, the rate of interest increases, would the bank revise upwards your monthly instalments? And what if the rate falls?

The Annual Percentage Rate of charge, or APR, is calculated on the terms of the credit agreement; interest rate, annual fees, payment protection insurance. The APR takes into account the interest rates applied, fixed or variable, and any additional costs payable to the lender. The borrower can use the APR figure to compare rival credit offers on a like for like basis. 

  



Last updated: Sep 07, 2016

You might also be interested in...

Home LoansPersonal Loans

Facebook