At times, many people can end up in a financial situation in which it is impossible for them to have enough money to carry out some activity, either to become independent, study or undertake.
This should not be an excuse to do without all our dreams, and that is why there are many financing methods where we can have the option of obtaining the money we need, with the possibility of returning it when we have the conditions to do so.
These types of loans are very fashionable lately, especially due to the current crisis, although we must be very careful with the amount of money that we are going to request , since loans with a deficiency, although they are one of the most beneficial, also he has some cards up his sleeve that are important for us to know.
What does grace period mean?
A loan with a grace period consists of a period of time that is established in the document of responsibility, where the debtor agrees to pay once concluded. During that period of time, the debtor must be able to produce the money necessary to pay it plus interest. It is highly requested by individuals who have an urgent financial situation and know that they will not be able to repay the loan in the short term .
This method of financing is highly requested by those people who need to pay a mortgage or companies that want to start a new market niche and what they know that they will be able to return it in the future. There are also a series of provisions that are documented in the contract to understand the conditions under which the loan will be repaid.
Who can access a deficiency loan?
In this sense, let's give an example, that if we want to undertake we can request a deficiency loan for a total of € 20,000 or more, the document specifies that in a total of 3 years the venture will begin to produce profits and that is when we will have to pay off the loan with these earnings , although it is important to note that very high interest rates are added to those € 20,000.
Any individual can access a loan of this type, even if it is to study at the university. The grace period can last between 4 to 5 years and can be returned when the student graduates, since it will be able to enter the world of work more easily.
However, one of the most important personal conditions to request it is that it is difficult for us to have a regular income to cover our expenses, although most of the time it depends on the type of deficiency that we request, so we have the need to finance ourselves with this method. Even so, if we request any other type of loan, we can access a grace period by negotiating with the second party .
What are the types of loan deficits?
A non-current loan meets certain characteristics that can be very beneficial during the period of time in which it must be repaid. For example, we can amortize the capital by reducing a little the installments that we must pay or even eliminate them completely during the established time. This duration can be established in the short or long term and we can request them at any time. Most of the time it is requested in advance when we realize that we will not be able to pay or when we have certain problems of non-payment with mortgage loans .
In this way, we have two types of deficiency loans that we can go to:
- Total default : As the name implies, we can establish a period totally free of payments in the contract or in the loan responsibility document. This is usually very useful depending on our economic situation, since it allows us to exempt ourselves from mandatory payments for a long time to focus entirely on the production or activity for which we have requested the loan.
- Partial default : This is the most requested, since with it we can pay only the interest on the loan on a monthly basis and then proceed to the rest of the payment once the grace period is over.
It is important that we bear in mind that the grace periods can differ greatly depending on the amount and the period. In any case, we can request a grace period even if we have any other type of active loan , we only have to observe if we have that possibility according to the conditions of our contract and the availability of the financial institution.
Is it ideal to request a grace period?
A deficiency loan is usually very useful in case we are involved in a financial emergency, so we will need a large amount of money with great benefits in the period of time of the payment . They are perfect to pay debts that we have accumulated and to alleviate a little the economic burden that we are suffering. However, we must be sure that we will recover financially within the agreed time frame.
Although it sounds quite beneficial, it is not highly recommended, since even if we do not pay the loan in established monthly installments, we will be accumulating a large amount of interest , something that can represent a debt in the future. For this reason, it is important to know that we will have the necessary resources to pay all the credit plus interest within the established term. If we cannot pay at the agreed time, we will also have to face additional expenses.
The ideal time to apply for a grace loan is when we are completely sure that we will be successful according to the proposed conditions for payment. In addition, we can plan the return of it correctly .
It is also important that we verify if there are no other more suitable financing methods according to our situation. In case we only need a fast and accessible loan, we can choose a mini-credit to access a large amount of money without the need for a guarantee and other requirements.
What is the cost of default loans?
As we have already mentioned before, the grace period can be very useful in case we want to cover some non-payment needs, although this also comes at a great price. During this time in which we save the monthly payments or even if we opt for a partial loan, in which we are only paying for the interest, the capital that we have pending will be maintained and the interest will accrue on that amount, so in the end We will be paying more than we expected .
To understand it better we can use a financing example. Suppose we apply for a loan with a € 10,000 grace loan and we must repay it in a total of 5 years. Therefore, we establish with the entity a total of 60 installments of approximately € 203, with an APR of 8%. So in total it would be just over € 12,000. Now suppose we can repay the loan in 1 year, the total would be more than € 12,500.
In the event that we want to extend the grace period, we can negotiate with the bank , although sometimes it is also less viable since the interest that will be charged will be more. So we must calculate which would be the most appropriate option so that we do not lose more money.
In any case, applying for one of these loans is more affordable than stopping paying the loan since late interest and commissions for non-payment notices are higher, so it is better that we consult what may be the ideal option in front of to this.
Additional requirements to request a grace period
It is important that we are sure that it is profitable to request a grace period , since we will also have to incur some additional expenses to complete a series of requirements and demands. For example, we will have to carry out a novation, which is a procedure by which we must pay a commission established by the entity. It is necessary as it will be used to change some aspects of the loan agreement.
Likewise, depending on the specifications of this document, the bank could increase interest rates, although this depends on the conditions of the entity, so we must carefully review the fine print when signing this type of contract, including interest rates that are subject to regulations that we cannot ignore. Some conditions that may apply are:
- When requesting a novation for a grace period to extend our mortgage payment period, we must have paid a total of installments limits so that the bank is sure that you will not lose.
- The maturity of the mortgage must be far enough when requesting it, some banks even indicate a total of 5 years for its maturity.
- The interest for the grace period will also be increased by 1% of the interest on the mortgage.
Finally, we must be aware of the requirements of the law in the event that we request a deficiency loan for a mortgage . We can rely on the Code of Good Banking Practices, a regulation that was approved in 2012 to improve the conditions of mortgages. Likewise, in 2015 a series of changes were approved in the Second Chance Law where both parties must meet the necessary requirements to access the absence.
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