There are banking terms that are the same world over and there are some that are specific to some regions. One of such terms is ‘Blank Loan. In Norway a blank loan is the same as what Americans refer to as consumer loans; usually an unsecured one.
This is an arrangement between a bank and its customer where the customer takes out a substantial sum of money that’s not backed by any form of collateral. Just as with consumer loans, a customer can take out a blank loan for any purpose. It could be for medical bills, to sort out some bills on the home front or to make a substantial purchase like a house or car.
Some banks make provision for blank loans for their long standing and loyal customers to be able to replenish the capitals of their businesses. While some other banks treat this loan the same way that an unsecured loan will be treated. The main thing about blank loans is that it is only given to longstanding and loyal customers of the bank or financial institution.
For the purpose of this article, we will address what is globally known as consumer loan which is what is oftentimes referred to as blank loan in some European regions and some countries in Asia.
Table of Contents
How Does a Blank Loan Work?
In Norway, the interest rate of this type of credit facility is based on the financial record of the customer. The person must have a high credit rating and must have displayed credit and trust worthiness in their dealings with the bank.
It has a repayment plan that is predictable which means that the borrower has control over their finances and doesn’t run the risk of defaulting on repayment.
When a bank gives you this kind of loan (annuity loan), you need to understand that you will have to make a fixed monthly payment. This payment comprises of the fees accrued on the loan, the interest on it and principal. You will keep making this payment until you pay off the full amount you have borrowed.
This Blancolån presently has a lifespan of 1 to 5 years. But if you want to use this credit facility for refinancing purposes, bear in mind that the terms and conditions will be different. You may be able to increase the lifespan of the loan to as much as 15 years. It all depends on the agreement that you come to with your bank/lender.
In this loan system, there are no penalties for repaying the debt earlier than on the agreed date. So you can actually work towards paying off your debts faster.
You can check out this article for the advantages of paying off loans early.
Who Qualifies For Blancolån?
Every financial institution that gives out this kind of loan has its bench line for qualification of applicants. These basic requirements include income, age and creditworthiness. Below is a list of the basic requirements of most banks in Norway:-
- Applicant must be no less than 18 years at the time of application.
- Must be a citizen of the country and also resident there.
- Must have a steady income which proves that they can pay back the loan.
- Must not have any outstanding debt or collection case with any agency, bank or financial institution.
These are the basics but there are some exceptions to the rule. For example, some banks age limit requirement is 20 while others go as far as 25 years. Another example is that of income; some banks require a minimum annual income of NOK 120,000 while others require as high as NOK 250,000 per annum.
So while taking note of these basic requirements prepare your mind for some little variations across lending organizations.
What Does the Bank Look Out for In Applicants?
When the bank receives an application, they look out for some things in the applicant to determine whether the loan will be approved or not. Some of the things they look out for include the following:-
- Credit score
- Repayment history
- Income and cash flow
- Debt to income ratio
This is a very serious consideration especially for a loan that’s unsecured (which is what a blank loan is). So the bank will look at your credit score to see how high or low it is. The higher the score, the higher your chance of getting approved; but a lower score will greatly reduce your chances.
Your credit score is a measure of your creditworthiness. This is what assures the lender that you are to be trusted to repay if granted a loan. Therefore maintaining a good credit score is one thing that you must take seriously so that you wouldn’t be denied funds when you really need it.
This would entail checking all your transaction records to see whether you constantly default on payments. Do you have credit card debts? Have you offered or do you offer DUD checks? All these and more are the things that will be discovered through your repayment history.
Income and Cash Flow
The bank would check how much comes into your account on a regular basis and how high or low your cash flow is. Most often, banks prefer to give loans to salary earners because they feel more secure knowing that the applicant gets a fixed amount every month or every 15 days.
For business people, the banks would check how much they make and how regularly the money comes. If your income fluctuates, they may hesitate to approve your application.
Debt to Income Ratio
This is refers to the percentage of one’s monthly income that is dedicated to paying off debt every month.
The bank also checks the income of the applicant against the expenditures that they have and how much is left over for servicing of debts. So even if one’s income is high but the person’s living expenses is high, the bank may not feel comfortable approving the loan. This is because the applicant may not have the capacity to make their payment after offsetting living costs and other expenditures.
Additionally, a person may have a high income but so many debts that the percentage of their income they spend on servicing debts is too high. Lenders prefer that the DTI (debt to income) ratio of their customers be no higher than 43%. In fact the perfect DTI that most lenders look out for is 36%.
From the foregoing therefore, anyone that intends to get a loan sometime in future needs to work on keeping their DTI as low as possible. Even apart from for the purpose of getting a loan, a healthy financial life requires a low DTI.
This may come as a surprise to some but the truth is that many lenders look at the occupation of their applicants. Some banks prefer to give loans to government workers because they feel that they have job security. Others look at what they term ‘reputable’ occupations before approving loans.
Though this may sound discriminatory, but the banks are in business to make money and they will always do all they can to protect themselves against any form of loss. While you may not have any control over this, it may help that you have the information. This will help you know whether to go ahead with your loan application or look for a co borrower.
You can visit billigeforbrukslån.no/blancolån for more information on how you can position to benefit from taking out a blank loan.
One major point that many people miss is that banks always look out for customers that have integrity and character. This therefore means that you should be careful to maintain a good financial record as it may come in handy when you least expect. Remember that financial emergencies do not give notice; that is why they are called emergencies!
So whether your region refers to our subject matter as blank loan or consumer loan, we have shared information that will help you qualify for and access this financial product that eases your money burdens. Bear them in mind for future transactions.