Understanding Active Operations and Loan Types in Banking

Posted on Jan 7, 2025 in Business Administration and Management (BAM)

Active Operations of Credit Institutions

The active operations of credit institutions involve providing resources to customers who agree to return those resources plus interest. Any operational assets are reflected in a contract. The most common active operations are operations of commercial discounts, loans, and credits. Other operations include bank guarantees.

The discounted cash settlement is used to calculate the total operating cost of a discount. The total cost of the settlement consists of three concepts:

• Proper discount coupon or interest
• The banking commission
• The postage

Loan Types

The Bank Loan

The bank gives a customer money through a contract called a policy, which includes an agreement for the repayment of that amount plus the interest generated within the time and manner agreed upon.

Classification of Bank Loans

• Personal Loans: These loans are provided to clients with financial solvency or the creditworthiness of guarantors or sureties. They are obliged to respond before the loan payments if the borrower fails to do so. There are natural and legal persons. Natural persons earmark these consumer loans for buying cars, etc., and legal persons usually use them to finance their current assets. The payback time is typically 1 to 5 years. Before granting the loan, banks ensure that the customer can take over repayment of loans. They check requested revenue, payroll, balance sheets, profit and loss accounts, etc. They also check if a customer is already with the entity, request reports from appropriate sources, report on seniority in the job, and study the assets of the borrower and its guarantors.
• Mortgage Loans: Such loans are given only for real estate, buildings, land, etc. If the client does not meet the payments, the bank may scale, have those come, and take them to competition to recover the amount owed. The formality of these loans requires a deed drafted by a notary and signed by the three parties (notary, bank, and customer) and entered in the Land Registry. Repayment typically ranges from 10 to 40 years.

Credit Accounts

The bank makes available to the client a sum of money up to a limit and for an agreed period. The most common operation of the credit account is as follows: The bank opens a credit account with a limit and a current account. The current account holder uses it for all payments. When the current account balance is insufficient to cover payments, the bank transfers money from the credit account for the amount needed to cover it.

The terms for granting credit are usually quarterly or annual. The balance of credit accounts is always zero, never debtors or creditors. The costs of a credit account are: opening commission, brokerage, interest, and commission availability. The cancellation of the account can be made at any time the client wishes.

What is a Loan Policy?

It is the contract in which the parties undertake to meet the general and specific conditions of operation.

Differences Between a Personal Loan and Mortgage Loans

The mortgage loan is unique and is exclusive to the property (buildings, land, etc.), and a personal loan is granted for everything else, such as buying a car, renovating a house, and so on.

Differences Between a Loan and a Credit

With the signing of the loan, the institution gives the total amount to the customer’s account. At the opening of bank credit, it does not deliver anything but promises to have money available to the customer up to a limit that the client will withdraw as needed. The loan interest is paid on the full amount, and given credit only for the quantity that is provided to the client. The loan is formalized in a loan policy, and credit is formalized in a credit policy.