What is a special purpose loan

A special-purpose loan is also a popular bank loan. By choosing it, we are able to save a lot compared to even a standard cash loan. So before we decide on this solution is able to save a lot compared to even a standard cash loan. So before you decide on a bank loan, you should know the benefits of special purpose loans.

A cash loan (or cash loan) is a product addressed to almost all of us

A cash loan (or cash loan) is a product addressed to almost all of us

Funds obtained in this way from the bank can be used for any purpose. However, this type of debt is a relatively expensive solution. Much cheaper credit is purposeful – although not different than a cash loan.

A special-purpose loan is a great tool for people who are going to finance a specific goal – hence clearly defined. This can be, for example, the purchase of a car, real estate, electronics/household appliances, education or renovation of an apartment.

Simply put, a special purpose loan is any bank loan for a specific purpose. Very often, collateral for this type of loan is an item acquired by the borrower from funds obtained in this way from the bank. So a great example of a special purpose loan is a car loan and a mortgage (housing). One of the basic advantages of special-purpose loans is the relatively low cost of borrowing.

The low cost of special-purpose loans is due to the form of a debt security

For example, in the case of car loans, the collateral for the bank is the vehicle acquired by the borrower. As for mortgage loans, the collateral here is a mortgage on the property. By granting loans for a clearly defined purpose, and in addition properly secured, as in the case of the aforementioned loans (car and mortgage), the bank bears a significantly lower risk of losing funds.

As for special purpose loans, borrowers are often required to document the purchase of specific goods at the bank. They must, therefore, prove that the funds obtained were spent in accordance with the designated purpose. The bank may require the submission of an invoice, bill or purchase contract.

In some cases, the banking institution does not pay the borrower money when granting such a loan makes a payment to the seller’s account (e.g. for a car, real estate). Then the borrower himself does not have the funds obtained from the loan, because they are sent directly to the counterparty.

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