Credit – is a great responsibility. It is worth approaching its design very seriously and carefully. About how to use this financial instrument correctly, what to pay attention to, when signing a loan agreement and how to interact with banks, in an interview with the republican newspaper ‘Kazakhstanskaya Pravda’ said the director of the department for protecting the rights of consumers of financial services of the Agency of the Republic of Kazakhstan for the regulation and development of the financial market (ARDFM) Alexander Terentiyev.      

- Alexander Leonidovich, now, against the backdrop of an unstable financial situation, it is difficult for Kazakhstan people to remain calm and composure. Some panicked and rushed to buy household appliances on credit or in installments. What should I do to avoid taking unnecessary loans?      

- Before taking out a loan, think about whether you really need it. Do not apply for a loan without urgent need, especially do not panic and buy another TV or an unnecessary gadget. A loan is, first of all, an obligation that you, as a borrower, will need to fulfill within a certain time. Therefore, if you are not sure that you will be able to repay a loan, it is better not to take it, refrain from additional burden on your personal budget! Getting a loan is easier than paying it off.   

Before you go to a bank or microfinance organization (MFO), take a break, clearly assess your financial situation. Do not make impulsive decisions, so that later you will not face possible problems, when you default on your credit obligations. Weight all the risks. For example, will you be able to pay your loan on time, if you lose your job or become temporarily disabled due to illness, and so on. I would like to remind you about the debt load ratio, the borrower needs to evaluate his own income.     

A safe level is a loan at which the monthly payment does not exceed 50% of income. After paying the monthly loan payment, you should still have funds to cover current expenses and personal needs. It is very important to form a financial airbag, that is, money for unforeseen cases. It is desirable that it be at least six monthly salaries or more. Then, if, for example, you temporarily remain unemployed, you can still fulfill your loan obligations on time. Thanks to competent and flexible financial planning, the presence of an airbag, you will stay afloat in a difficult period.    

- And if, for example, you can’t do without a loan? If, after careful consideration, the family nevertheless decided to apply for a loan? How to act correctly?    

- If you take a loan for really urgent reasonable purposes, then first monitor the loan offers of different banks, MFOs, analyze their products and conditions. Never trust tempting advertisements. Read customer reviews, Financial summaries of the bank’s performance, make inquiries about its reputation. Chat with friends, acquaintances, who took out loans. After talking with them, the likelihood of illusions is reduced to a minimum. Apply for bank loans or microcredits, online loans only in organizations licensed by the Agency of the Republic of Kazakhstan for the regulation and development of the financial market. You can check its availability on the Agency’s website in the “Financial Markets” section. Bypass ‘black lenders’, the so-called intermediaries, offering to get a loan at a favorable, very low rate or without overpayment. And most importantly, never sign a loan agreement without carefully studying it. You can take the contract with you and study it in a relaxed atmosphere. Those points, that you do not understand, you can discuss with a bank of MFO employee at a meeting. If you put your signature in the contract without thoroughly studying it, this will mean that you automatically agree to all its conditions.    

- I propose step by step to figure out how to properly issue a loan to potential borrowers. Suppose we contacted the bank, asked the manager for a contract for familiarization. What you should pay attention to?

- Legislation provides for the obligation of banks to disclose full information regarding the terms of the loan. This is a new form of memo, which is provided to the borrower before concluding a bank loan agreement, and it was introduced to enhance pre-contractual work, in order to increase the transparency of the terms of bank agreements. Before concluding a bank loan agreement, a financial institution is obliged to provide detailed advice on any questions you may have. The memo contains such information as: the amount and currency of the loan; loan term; number of payments; type of remuneration rate 9fixed or floating), remuneration rate in annual percentage or in a fixed amount; the name and size of commissions and other payments related to the issuance and servicing of the loan; the total amount due; the final amount of remuneration; the amount of the penalty (fine, penalty) for late repayment of the principal debt and remuneration; the need to conclude an insurance contract and the terms of its prolongation; contract details of the bank, other types of fines, penalties, according to the terms of the bank loan agreement, including for misuse of the loan, late execution of insurance contracts, and so on.

After you have studied the terms of the loan and are ready to sign the agreement, you need to pay attention to the title page to the agreement. In order to raise consumer awareness, a rule has been introduced that provides for the attachment of a title page to a bank loan agreement, the format of which is the same for all banks. The title page contains basic information about the loan. The text of the agreement is set out after the title page. Thus, the borrower must receive complete information about the main terms of the loan that he decided to issue before concluding a bank loan agreement.

The title page must contain the amount and term of the loan; the size of the remuneration rate; annual effective interest rate; method and method of repayment. If the contract contains the borrower’s right to partial or full early repayment of the principal debt, it must contain information on the need for the borrower to apply to the bank with a corresponding application. The title page also contains information about the amount of the penalty (fine, penalty) for violation of obligations under the contract; on the right of the borrower to submit a written application to the bank containing information about the reasons for the delay in fulfilling the obligation under the bank loan agreement, income and other confirmed circumstances (facts). The text of the agreement is set out after the title page. It is printed on A4 sheets, in Times New Roman font size no less than 12, at regular intervals. If you do not understand something from the bank loan agreement, do not hesitate to ask questions to the manager, clarify the rights and obligations of the parties, what consequences you can expect in case of delay. If possible, consult with a lawyer. Getting a loan - is a big responsibility!

- In the loan agreement, the credit institution indicates, what the annual effective interest rate will be. What does she mean?

- The annual effective interest rate (AEIR) is the total amount of all payments, which includes the amount of monthly payments and commissions associated with the issuance and servicing of a loan. Since 2011, the AEIR for all types of bank loans and microcredits has been unified and amounted to 56%, but since 2021, the marginal interest rates on bank loans have become differentiated. For unsecured bank loans and microcredits (secured and unsecured), the limit value of AEIR was kept at the level of 56%. For collateralized bank loans, the limit value of AEIR has been reduced to 40%; on mortgage housing loans – up to 25%; for collateral microcredits issued for up to 45 days and for up to 50 MCI – reduced from 30% to 20%.

- A credit institution may offer the borrower a differentiated, annuity or other method of repaying the principal debt. Alexander Leonidovich, which one should be preferred?

- The differentiated method implies the repayment of the principal debt in equal installments. The monthly payment decreases every month, due to the fact that the principal debt is repaid in equal installments, and interest is charged on the balance of the debt. This is beneficial, if you plan on early repayment. For example, you have approved a loan for 1.5 million tenge for a period of 36 months, the interest rate is 29% per annum. In the first month the payment will be 77,916.67 tenge, in the second – 76,909.72 tenge, in the third – 75,902.78 tenge and then in descending order. In the last month, the monthly payment will be 42,673.61 tenge.

With the annuity method, equal monthly payments are stretched over the entire term of the loan. Payments for the principal debt increase, and payments for interest decrease, that is, in the first months, the main amount of payments goes to repay the interest. For example, with the same initial data (loan for 1.5 million tenge for a period of 36 months with an interest rate of 29% per annum), the monthly payment until the end of the contract will be 62,858.57 tenge. Another method, in accordance with the internal rules of the credit institution, may look like this. For example, you have issued a loan for 1 million tenge with an interest rate of 29% for 1 year. In agreement with the credit institution, you will need to repay the loan at the end of the term with a fee of 1,290,000 tenge.

- Do I need to pay attention to the terms of the loan?

- Of course, the amount of the overpayment depends on them. The longer the loan term, the higher the loan repayment will be. Check with the consultant, what are the conditions for partial or full early repayment of the loan, whether there is the possibility of early repayment at any stage without penalties and overpayments. According to the law, banks are not entitled to charge a penalty or apply other types of penalties for early repayments of loans. An exception is cases of partial or full early repayment of the principal debt: up to six months from the date of receipt of a loan issued for a period of up to one year, and up to one year from the date of receipt of a loan issued for a period of more than one year. In this case, you will pay interest to the bank only for the actual days of using the loan.

- Can a bank or an MFO change its terms after signing a loan agreement?

- Credit institutions are prohibited from changing unilaterally upwards the amounts and procedure for calculating commissions and payments for servicing the loan established as of the date of conclusion of the agreement. They are also prohibited from introducing new types of commissions and other payments under the concluded agreement. They also do not have the right to charge a penalty or other types of penalties for early repayment of loans, except in the cases, that I mentioned earlier. Credit institutions are also do not entitled to collect forfeits or other types of penalties, if the date of repayment of the principal debt or interest falls on a weekend or holiday, and payment of the interest or principal debt is made on the next business day. However, sometimes credit organizations can still change the contract unilaterally.

- In which cases?

- Only in the direction of improving conditions for the borrower. For example, in the event of a reduction or complete cancellation of commissions and other payments for the provision of services related to servicing a loan, a reduction or complete cancellation of a penalty (fine, penalty fee). A change in the direction of reducing the interest rate under the agreement is allowed, as well as in the case of deferral and (or) installment payments on the loan. The bank has the right to reduce monetary liabilities under a mortgage loan issued in a foreign currency by replacing the foreign currency of the loan with the national one. The bank is obliged to notify the borrower of changes in the terms of the agreement. And he has the right to refuse, if he applies to a credit institution within 14 calendar days from the date of receipt of a notification of a change in the terms of the contract.

- Alexander Leonidovich, what else do borrowers often forget about?

That the final terms will be specified in the contract. Therefore, I repeat: when signing a contract, it must be carefully studied. Not all citizens delve into the essence of the contract, putting their signature under it, after which they may have unexpected problems with the fulfillment of obligations. The loan must be repaid on time. Therefore, follow the payment schedule, set a reminder on your phone about the date of the planned payment. It is best to pay the monthly payment in advance, 5-7 working days before the due date, so that the money has time to be credited to your account. If there is an opportunity to pay off the loan ahead of schedule, then be sure to use this. For partial or full early repayment of the loan, the borrower must write an application to the credit institution.

If you repaid the loan ahead of schedule, then check with the manager, whether it was possible to do this. Sometimes you need to correctly arrange early repayment in a mobile application. Be sure to take a certificate from the credit institution, confirming that the loan is closed.

- What should be done in case of default on the loan?

- From October 1, 2021, Kazakhstan has a unified legal regime for the settlement of problem debts of individual borrowers by credit institutions. If the borrower fails to fulfill his obligations, the creditors are obliged to notify him of the delay within 20 days from the date of its occurrence in the manner and within the time specified in the contract. The creditor must report the occurrence of a delay and the need to make payments under the agreement, indicating the amount of overdue debt as of the date specified in the notice, and recall the right of the individual borrower under the agreement to apply to him and the consequences of the borrower’s failure to fulfill its obligations.

- Some borrowers, knowing about the delay and even having received a notice from the lender, then try to prove, that they did not know about it. Can such ‘Ignorance’ somehow help them?

- The notification is considered delivered, if it is sent to the borrower in one of the three ways provided for by the agreement. For example, to thee-mail address or place of residence specified in the agreement, by registered mail with notification of its delivery, including, if it was received by one of the adult family members of the borrower living at the specified address. The bank may also deliver the notification using other means of communication, that make it possible to record its receipt by the borrower.   

If patients have an overdue debt on a loan, then in no case should they hide from accumulation. Required within 30 days at a bank or MFO for loan restructuring with a written application. If there is any non-judicial collection, then the collection can be exceeded from the amount in court for the collection of debt or collateral out of court or in court, transfer the debt for pre-trial collection and settlement to a collection agency.

A credit organization has the right to collect in an indisputable manner the funds available or coming to the borrower’s accounts. The lender may also assign the right under the loan agreement to a third party or take other measures in accordance with applicable law.

- Borrowers are afraid that interest will be charged on overdue loans…

- New measures have been in place since last year. Banks are prohibited from demanding payment of remuneration, penalties (fines and penalties), commissions and other payments after 180 days of delay in obligations for all loans. Prior to this, there was a ban only on mortgage housing loans.

- What should a borrower do if it was not possible to reach an agreement with the lender?

- The borrower can apply to the Agency of the Republic of Kazakhstan for the regulation and development of the financial market. However, there is one ‘but’: you must provide evidence of your application to a bank or MFO and the fact, that a mutually acceptable solution has not been reached. Therefore, save all applications, that you submit to restructure your loan to a bank or MFO, do not lose it, as well as your lender’s written response. Additionally, to resolve disagreements, the borrower can contact the banking ombudsman, who provides free services.

Whatever happens, there is no need to postpone contacting the bank, the Agency of the Ombudsman. Debt obligations entail serious consequences for the psyche. The emergence of sudden debts, lending to an unsuccessfully built business, that is on the verge of bankruptcy, all this falls on the shoulders of the debtor. Thoughts about debt lead to panic attacks, plunge into a state of fear and depression. Therefore, it is worth taking seriously and consciously the issues related to lending and increase your credit responsibility!