Types of bank loans: mortgage, commercial and consumer
Banks often offer different kinds of credits so that their clients have access to multiple financing options. Among the most common types of credit are mortgage, commercial and consumer loans . Next we will see what each of them consists of.
Types of bank loans: Mortgage loans
Mortgage loans are credits granted by banking entities for the acquisition of an already built property, land, as well as for the construction of homes, commercial premises and other real estate. They are also known by the name of mutual mortgages .
The payment term is usually agreed for the medium or long term, usually between 20 and 30 years.
In addition, in the mortgage loans the property remains with the guarantee of the mortgage, that is, the bank stays with it if you cannot pay the loan.
There are mainly three types of mortgage loans in Chile:
- Mortgage Credit with Letters of Credit: it is financed with an instrument issued by the bank, the “mortgage letter”, but they are regulated by the Superintencia de Bancos y Instituciones Financieras (SBIF). Once issued, the bank trades them on the Stock Exchange, sells them to a third party or acquires them himself. The objective of all this is to obtain the financing of the credit granted.
- Endorsable mutual mortgage loan: the bank finances the loan with its own resources. The applicant receives the agreed amount (which cannot exceed 80% of the value of the property) and is granted a deadline for its return. The bank can transfer this credit through endorsement, duly registered in a public deed.
- Non-endorsable mutual mortgage credit: this type of credit is regulated by the Law on money credit operations. As in the previous case, the Bank finances the loan with its own resources, but it cannot be transferred through endorsement.
In any case, what should be given special attention when choosing a mortgage loan is the Annual Equivalent Charge (CAE), which is the total cost of the loan for each year, including expenses, prepayments and interest.
If you want to know what are the best mortgage loans in Chile, you can do so by clicking here: What are the best mortgage loans?
Types of bank credits: Commercial credits
Commercial loans are amounts of money granted by the bank to companies of different sizes to meet the needs of Working Capital, acquisition of goods, payment of services oriented to finance their operations or to refinance liabilities and short-term suppliers.
Commercial loans are usually agreed in the short or medium term (generally, from 1 to 4 years).
To access this type of financing, companies must provide the banking entity with extensive information about its operations and the income and expenditure flows it generates, in order to guarantee the payment of the credit granted. Therefore, companies without a commercial history or without balances audited by third parties face problems in accessing this type of financing.
Types of bank loans: Consumer loans
A consumer credit is an amount for which a person is lent to buy goods or pay for services. They are offered by both banks and certain commercial firms or establishments, which finance purchases in several months.
These credits offer a lot of flexibility, they are freely available for immediate spending, that is, they can be used for what is deemed convenient by the client: order their accounts, buy a car, travel, etc.
The consumption credit limit will vary according to the capacity of each applicant. It is usually agreed, such as commercial loans, in the short or medium term, between 1 and 5 years.
When hiring a consumer credit, you must take into account, especially, the following:
- Annual rate: is the interest charged by the bank and determines the total cost of the loan, considering commissions and expenses.
- Number of installments to be paid, term and payment period.
- Amount of each installment.
- The contract must specify that the client can use the credit freely, without having to inform the entity of it.
Here you can check the best consumer credits: Best consumer credits.
These are the main bank credits used in Chile. Do you have any doubt? Do you need more information? Remember that if so, you can comment below and we will gladly help you.