Bank loan: What it is, function and credit policies - GovtVacancy.Net

Bank loan: What it is, function and credit policies - GovtVacancy.Net
Posted on 25-10-2022

Bank loan: What it is, function and credit policies

We often hear about bank loans from acquaintances, relatives or friends, from acquaintances, friends or relatives. This allows you financial security to acquire any product or service. We invite you to learn more about these banking services.

What is a bank loan?

bank loan is the issuance of funds by a financial institution that the borrower agrees to repay on time with interest. The loan is granted not only to individuals, but also to companies and entrepreneurs. Its purpose is to maintain financial condition or provide funds for development.

credit credit functions 

Let's consider the main functions that loans perform or, more simply, answer the question: why do we need a loan globally?

° Distribution

It means that, thanks to the loans, the funds are distributed between those who have them and those who need them.

° Issue

Loans create credit money that replaces cash.


The credit system establishes certain rules for the use of funds by the borrower. For example, through targeted loans.

° Stimulant

The essence of the loan implies that the client must spend it efficiently and do everything possible to pay it back.


Loans can be used for education, improvement of conditions, business development, etc.

Foundations of the Bank Credit Policy

The credit policy is what characterizes the bank, its priorities and, ultimately, the products. It acts as a hub on which marketing , technical, service, and other processes are based. It is thanks to the credit policy that the image of a financial entity is formed.

It works like this. First, the work vectors are established, then they are implemented, and ultimately the effectiveness of the given instructions is evaluated.

Credit policy: It is not accepted once and for all. It depends on the economic environment and can change under its influence.

for individuals

The credit policy defines:

° Which segments to focus on, whether to focus on consumer loans, mortgages or retail chain loans.  

° What programs to introduce - for retirees, youth or family members;

° Requirements for the borrower: what will be the age, length of service, income;

° The nature of the loans: short or long term, what size, secured or unsecured. On this basis all the work of a financial organization is built. Its positioning in advertising , the comfort of a mobile application or a scoring system.

For legal persons

° With respect to legal entities and individual entrepreneurs, financial institutions decide which industries they want to serve, whether they will focus on certain companies.

° Company selection criteria are being developed. They are based on the transparency of transactions, profitability, the availability of collateral. Also, organizations can pay attention to the reputation of the holder, request the credit history of him.

° All this is important, because the company's relationship with financial institutions, as a general rule, is long-term. It is necessary to determine at the initial stages how exactly the joint work will be built.

Types of loans

Consider the popular types of bank loans :

° Consumer

Common type of loan. In this case, the money is given without a spending purpose. The customer can spend money on anything: buy a new phone, make repairs, pay for treatment or organize a wedding.

° Mortgage

The purpose of the loan, which is issued for the purchase of real estate. In addition, it is also a guarantee: it means that the purchased property remains as a pledge, as a guarantee of payment. If the debt is not paid, it will be taken away.

° Car loan

A special type of loans for the purchase of automobiles. You can buy new and used cars. The car becomes a pledge, thanks to which the interest rate in such programs is lower, loans are approved more easily.

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