What kind of loan to take? Pros and cons of all types of loans

Loans are a favorite financial product in Kyrgyzstan. The number of borrowers is growing almost every year. Last year, commercial banks issued loans for 162.6 billion soms, which is 11% more than in 2019. And microcredit organizations issued another 31.1 billion to clients last year, which is 13% more than in the previous year.

Often, financial organizations that provide loans, advertising their product, talk about favorable terms, but they forget to mention the disadvantages. Often in such situations, pitfalls emerge after the signing of the contract, when the client has managed to take on certain obligations.

If you see the “from” rate in the company’s announcement, be sure to find out the “to” rate, otherwise it may turn out that you counted on one amount, and you will have to pay much more.

Please note that if you are a student and you have loan related issues, like loan default, we can help you through our Strategic default private student loans services.

The editorial office of Economist.kg has prepared an overview of what type of lending should be chosen depending on the goals, terms of payment and urgency of receipt, etc.

Credit cards

On the one hand, this loan method seems very convenient, you always have an amount at hand that you can spend. The danger is that the credit card has no maturity dates. As long as you make the minimum payment on time, the bank restores your credit limit. The amount of debt will change from month to month and this can last for years.

Most people have forgotten to pay the monthly obligatory payment at least once, which is always fraught with a fine. Moreover, it reflects badly on the credit history. Experts advise giving up credit cards if you are constantly having trouble paying off your debt.

Credit cards have two advantages: the first is a grace period (it is different for each bank), during which you can close the debt without interest; the second – when paying for goods by card, you get bonuses that can be used for the next purchases. It is better to accumulate bonuses rather than debts with a credit card. To do this, you need to pay for everything with a card, and not withdraw cash.

This type of lending is suitable for those who know how to clearly plan the budget and distribute their expenses. Otherwise, it will be difficult to get out of the credit hole, especially since banks are always trying to encourage you to spend even more, for example, by offering to increase the credit limit.

Online loans

Online lending, like credit cards, is only a product of banks. Almost all banks have applications for their e-wallets or mobile banking, through which you can get a loan without having to go to a service center and collect documents.

A distinctive feature of online loans is the speed of the operation, which, on the one hand, is an advantage, on the other hand, it is a danger for unreasonable consumers, since one can succumb to temptations and take on a large debt.

The main disadvantage is the higher interest rate compared to other types of loans. Thus, banks try to cover the risks, since in this case they do not require proof of income.

This type of loan is recommended only in extreme cases, when a certain amount of money is urgently needed, but there is no time to collect documents and wait for bank approval.

Microcredit companies

The mechanism in microcredit companies is similar to online lending – a small amount is provided to meet urgent needs in unforeseen situations. Such organizations have less stringent requirements for their customers, but justify the risk with higher percentages.
It is important to pay attention to the fact that here the interest rate is calculated not in annual terms, but in daily terms , that is, interest is calculated daily.