Credits, dependent children and childcare costs: what should you know?

To what extent does having dependent children influence your credit application, and in particular the budget calculation carried out by the banks? What elements should be considered when declaring the request to speed up the process? Our turn to question.

 

Budget calculation

Budget calculation

The fact of having or not dependent children directly influences the calculation of the budget carried out by the banks. When a loan request is made, the banks analyze the applicant’s budget. In other words, we draw up a financial statement which depends on the one hand on income and on the other hand on expenditure. The more positive the budget calculation, the more it improves the applicant’s scoring:

  • Improving your chances of having your application accepted
  • Allowing you to be offered better loan terms (lower interest rate)

In other words, things like dependent children, child care, allowances, etc. can help modify the budget, and therefore lead to the acceptance or refusal of a request.

 

Dependent children

child credit

When calculating the budget, each dependent child decreases the budget from 300.- to 500.- depending on:

  • Age of children
  • Number of children

 

Childcare costs

child loan

Child care costs also influence credit. In fact, a person who wishes to apply for a private credit must announce, when requesting, all of the regular custody fees:

  • Possible costs of the crèche
  • Possible costs of a day mother
  • Other costs paid for childcare

 

Family allowances

Family loans

If the number of dependent children and the costs of childcare reduce the budget calculation, family allowances improve the budget. It is therefore important, when applying for a loan, not to forget to declare the amount of family allowances received, this in order to improve the calculation of the budget!

 

Birth premium

Birth premium

Many cantons give new parents a bonus for the birth of their child. This unique and exceptional premium is not taken into account for a credit request.

 

Do not forget to provide supporting documents

provide supporting documents

In all cases, all information related to children (number and age of dependent children, childcare costs and family allowances) will be requested during the processing of the file. Similarly, supporting documents will in principle be requested in addition to the usual documents requested for a credit request. In order to speed up the processing of the request, it is therefore important:

  • Do not forget to indicate the relevant elements for the calculation of the budget
  • Attach the supporting documents

This way of proceeding will thus avoid being asked for clarifications or supporting documents, and will further accelerate the processing time of the credit request in order to obtain a quick decision.

Personal credit: how to read a depreciation table?

It is a document which summarizes all the payments to be made to settle a private loan. Each line represents a date by which the borrower must make a payment. Thus, the amortization table will include for example 12 lines (12 months) in the case of a credit reimbursed over 1 year, and 60 lines (60 months) in the case of a credit reimbursed over 5 years.

 

What elements are indicated?

personal credit

Each line of the document is subdivided into several columns according to the information that one wishes to include. As a general rule, an amortization table includes at least, for each line:

  • The monthly number, or payment date: which indicates which monthly payment the line refers to. The first line corresponds to the date of the first payment to be made, and the last line to the date of the last payment.
  • The monthly payment: it is simply the amount of the invoice to be paid.
  • Amortization: this is the amount used to repay the loan.
  • Interest: interest paid monthly.
  • The balance: amount remaining to be paid so that the loan is fully amortized.

 

Amortization, interest, monthly payments

Amortization, interest, monthly payments

One of the fundamental elements to understand in an amortization table is that the monthly payment paid by the borrower includes on the one hand the amortization, and on the other hand the interest paid. However, if the monthly payment is fixed for the entire duration of the repayment, the parts dedicated to amortization and payment of interest vary over time. For example, a credit of 10,000 USD over 12 months with a rate of 8.9%.

  • The fixed monthly payment is 872.45 USD / month.
  • For the 1st month, the amortization will be 801.16 USD, and the interest paid will be 71.30 USD. The total of the invoice thus returns well to 872.45 USD.
  • The 6th month, the amortization will be 824.25 USD, and the interest paid 48.21 USD. The total invoice remains therefore USD 872.45.

Overall, the interest paid by the borrower is higher at the start of the repayment than at the end of the repayment.

 

Credit balance and prepayment

Credit balance and prepayment

The balance to be paid corresponds to the total amount of the credit, from which the depreciation already made is deducted. This is the amount “that remains to be reimbursed”. Knowing the balance that remains to be paid is particularly useful if the borrower wishes to make an early repayment. At any time, the borrower can indeed decide to “settle” his credit: he pays all the invoices that he still has to pay. Interest paid in excess will then be returned to him, less any deductions for early repayment charges.

 

How to get your amortization schedule?

How to get your amortization schedule?

As a general rule, it is always possible to request this document (or the equivalent) from the bank where the loan was made. Be careful though, because this service can sometimes be billed up to 200 USD depending on the bank! Certain intermediaries, however, provide, at the conclusion of the contract, a tailor-made amortization schedule to each client. At Multicredit, we attach this document to each contract at no cost.

What makes up the cost of the loan?

The price of money borrowed is one of the most important, if not the most important criteria for choosing a loan. If the bank offers were compiled solely by interest rate, life would be much easier. Nevertheless, to make the right choice you need to consider some other important elements of the loan.

When banks advertise their loans, they mainly display the so-called nominal interest rate. On its basis, interest is calculated, in other words remuneration for borrowed money. Interest is a basic component of the total cost of obtaining a loan, but it is generally not the only one. We are informed by the bank in advertisements about the remaining costs, as well as about the actual annual interest rate, but usually at the bottom of the screen and in lower case. Banks are required to provide all the costs that await us, as these are the requirements of the Consumer Credit Act – based on the so-called representative example, i.e. simply a typical example of the contract being concluded.

Commissions, fees, insurance, i.e. additional costs

Commissions, fees, insurance, i.e. additional costs

Unlike interest, commissions and fees are directly linked to specific activities that the bank performs. Considering cash and mortgage loans, we usually come across a commission charged at the beginning of the contract, as well as a preparation fee. The bank calculates the commission based on the amount of credit granted, and the rate may depend on several different factors, such as the borrower’s creditworthiness. In many situations, banks encourage their clients to take advantage of insurance, whose task is to ensure the repayment of installments in the event of unforeseen random events (e.g. loss of employment or hospital stay). Persons paying the insurance premium may also count on lower interest rates, but they are obliged to cover the costs of protection.

Repayment conditions and total cost of the loan

Repayment conditions and total cost of the loan

The bank where we want to take a loan usually presents us with a statement in which it shows us the total cost of the loan. Thanks to this, we will be able to see a separate sum for insurance (if we decide to do it, or it is required by the bank), as well as the sum of commission and interest. In addition, the bank will inform us in advance about the amount of installments, as well as how they will be repaid.

The most important element is the total cost of the loan. It contains a summary of all the above items. This value corresponds to the “gross price” of borrowed money and it can be the basis for comparisons if we want to check whether another financial institution has a better offer.

It is worth remembering that factors such as the repayment method have an impact on the total cost of the loan. If we choose equal installments, the sum of interest paid will be higher than when our choice falls on decreasing installments. This is due to the fact that installments decreasing from the beginning force us to pay back more capital, which means that our debt to the bank will be reduced faster.