Text C Getting a Loan from a Bank

Banks make a profit by lending out money that has been deposited with them. People borrow money from banks for personal reasons (for instance, buying a house) or for business reasons (as starting a business). Only customers of the bank can get a loan from it because the bank has developed confidence in them as a sound financial investment. When granted, the loan is transferred to the customer's account. A loan is a fixed amount of money that is at the customer's disposal for a definite period of time. By the end of that time the money should be paid back.

The borrower must pay back the principal (the sum of money loaned) plus the interest on it. For business loans, the principal and the interest are due by the end of the term of the loan. Personal loans are more commonly paid back in equal parts (installments) during the full period of the loan.

When somebody applies for a loan, the bank always requests information regarding the purpose of the loan, the amount of money requested, as well as how and when the person or organization plans to pay back the principal and the interest. Since a business loan will be repaid from profits received in the business, the bank will try to estimate whether such profits are realistic or not. Personal loans are repaid out of personal income, so the bank will estimate whether the person's income is sufficient to make the required payments.

Some kind of security (usually personal property) will be required for personal loans. For business loans, some assets of the organization applying for a loan will act as security.

Besides these precautions, the bank will estimate whether the sum of money requested is adequate to achieve the purpose of the loan. Banks sometimes prefer to lend more money in order to make sure the project will work and so ensure repayment of the principal and the interest owed them. On the other hand, customers may request less money than they really need because they wish to make repayment easier. But lack of funds may lead to failure of the project, which the bank does not want.

Exercise 13. Identify whether each statement below is true (T) or false (F), according to what you have read in the text. Correct the false statements. Use the following phrases:

Agreement: I agree with you; You are right; Certainly; Exactly so ; I fully support you

Disagreement: I can’t agree with you; I am afraid you are mistaken; Not quite so; This is not true; I disagree with the statement that…

1. Money is borrowed from banks for personal or business reasons.

2. Anyone can borrow money from a bank.

3. Bank loans are given to borrowers in cash from hand to hand.

4. Bank loans may be paid back whenever a borrower wants.

5. Both the principal and the interest of a loan must be repaid.

6. Security is seldom required when you borrow money from a bank.

7. Banks try to lend less money than borrowers request.

Exercise 14. Answer the questions:

1. How do banks make profit?
2. Why do people borrow money?
3. Who can get a loan from a bank? Why?
4. What is a loan?
5. What must the borrower pay back to the bank?
6. What information does the bank request to give a loan to a borrower?
7. What is the difference between a business loan and a personal loan? How must they be paid back?
8. Why does the bank prefer to lend more money?

Exercise 15. State in your own words what you have learned from the text about:

a). reasons for borrowing money from banks and who can borrow it;

b). conditions on which money is lent by banks;

c). information that should be supplied by an applicant for a loan, and the estimates that a bank makes when deciding whether or not to grant a loan;

Date: 2015-12-24; view: 873