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Tips on Getting the Right Loan

When it comes time to get a mortgage or consumer loan, it pays to shop around. There are several pitalls to keep in mind when shopping for a loan...hidden fees, prepayment penalties, annual insurance premiums, and finally interest rates. Most foreigners would be surprised to find out that some banks won’t lend to you because you’re a foreigner. It is less of a problem with mortgages than with consumer loans.

James Cook is Director of Aurora Investment Advisors.

The reason behind this is that if a bank gives a foreigner an unsecured consumer loan, there is a greater risk that the client may leave the country without ever paying back the loan. With a mortgage loan or secured loan, most banks are comfortable that they have some collateral to secure the loan in a worst case scenario. Keep in mind that it may be cheaper in the long run to purchase an apartment rather than pay rent. Depending on the size of the apartment, your monthly payment may be very close to what you’re paying in rent. Furthermore, you can deduct all of your interest and up to $20,600 in principal paid from your income for tax purposes. For American citizens, you can also deduct the interest paid on your mortgage in Russia. With the growth in property prices, it’s still one of the best investments you can make. And if you hold the property for more than three years, you are exempt from capital gains taxes on the sale in Russia.

When you select your bank, make sure that you ask about fees and other charges the bank may assess you. You would be surprised that some banks make almost as much annual income off of fees and commissions as they do on the interest they charge you. Some banks even charge you account maintenance fees which can significantly add to the overall cost of the loan. Also, many banks charge a prepayment penalty if you decide to repay your loan early. If you shop around, you’ll find that some banks will waive this penalty after the first six months of the loan period.

For consumer credits, some banks will encourage you to take out additional insurance. While this may provide some protection, make sure you read the fine print to make sure that you’re completely covered. Most policies do not cover replacement of your personal contents in case of a claim...getting this extra coverage and understanding you, policy will save you a lot of disappointment should you ever have to file a claim.

Finally, finding the best interest rate can be a challenge. Some banks still require that the loan file go to their credit committee for final approval. If this is required, keep in mind that some banks will change the interest rate (usually to a higher amount) at the last moment. Try to get some type of commitment from the lender up-front. That way, you’ll at least have something in writing and will have a stronger argument with the lender.

When getting a loan in Russia, read all the fine print and don’t give up. Banks will often take longer to make a final decision, but persistence pays off in the long run.