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Galina Zhukova, Member of the Management Board of "CREDIT AGRICOLE BANK" PJSC

23 September 2013

A member of the board, Responsible for the retail business and network of PJSC “CREDIT AGRICOLE BANK” Galyna Zhukova reflects on how to evaluate one’s paying capacity and why one should be meticulous while choosing a bank not only for a deposit but also for a loan.

When should one get a loan? Under which circumstances is a loan beneficial? Unfortunately too many people decide to take a loan under the following considerations: “I see it, I want it, I’ve no money so I take a loan and then we’ll see”. But in the meantime a loan shouldn’t be a burden; it should help you to fulfill your dreams. It’s an ordinary practice in the developed countries for many people to take a few loans over the course of their lives. However society’s financial culture in such countries is higher. It seems to me that one of the missions of the international banking groups in Ukraine is to boost the society’s financial education. And for the financially competent person a loan is beneficial, hence such person calculates its profitability easily and acts in one’s interests.

No matter how meticulous bank credit experts are, no one but the borrower can determine one’s payment capacity. In order to understand if it is possible to repay the loan one should make a simple calculation: subtract the expenses from the personal income (family income) and in the result you will receive your monthly net income. Then you divide monthly payment by the net income. If, according to the obtained results, your payment constitutes less than a half of the net income, then you can become a borrower without any worries. If this correlation is up to three quarters, it is also relatively safe. In case it’s higher, it will be difficult to repay such a loan.

The most common mistake is that customers are very meticulous at choosing a bank to place a deposit (and they are right!) but when it concerns the loan, unfortunately many borrowers tend to think that it doesn’t matter where to take a loan. Even though a borrower must be sure that a bank has transparent conditions and that a service quality corresponds to the price (it concerns not only a loan but also insurance and other related and additional services). 

Before getting a loan one needs to read about the bank, its shareholders and strategy. Since the borrower enters into long-term relations with the bank it is important for him/her to be comfortable throughout the duration of a credit “life”.

Agreement offered by the bank simply needs to be read. Unfortunately not all borrowers do it. One needs to investigate the type of rate (fixed or floating) offered by the bank. If it is a floating rate then you need to check the factors influencing the rate change. All bank commissions, penalties described in the agreement, need to be thoroughly analyzed.

You need to find out if there are any hidden commissions, for instance for the transfer of credit funds to the car dealer’s account.   You also need to familiarize yourself with the stipulations on the car insurances requested by the bank – Comprehensive Cover (Kasco) insurance of a car and life insurance of the borrower.

Penalties are usually applied in case of breaching the credit agreement conditions, which is considered absolutely normal not only in Ukraine but also in the world banking practice. That is why it is important to thoroughly study all the repayment conditions – repayment period,   installments, peculiarities of the early repayment etc. One also needs to receive loan repayment schedule from the bank.

And of course you need to look for special offers. For example, for the car loans promotion and partnership programs are usually developed through joint efforts of a few partners (importer/dealer, bank, insurance company) to maintain or increase sales of a certain car model or just to increase sales in general. Usually credit conditions on such programs, when it comes to price, are more advantageous for the borrower but one should keep in mind that in such cases the requirements to a borrower may also be higher, for instance bigger down payment, shorter credit period. Nevertheless, the time spent on the search of the appropriate loan program is a good investment. 

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