A special purpose loan is a very specific banking product. It allows you to enter into a commitment on much more favorable terms than the cash one you choose most often. However, when you take a cash loan, you don’t have to tell the bank what you will spend your money on. In the case of a special purpose loan, we have such an obligation and we already know it at the time of applying for this type of loan .
Why a special-purpose loan is cheaper
A special purpose loan is a group of banking products that cover different types of loans. They are cheaper because we have to provide information on what it will be used at the time of application. Therefore, the bank is sure that the money will be allocated to a specific purpose for us and will be used properly. Banks do not have such information with cash loans and, moreover, they cannot require it from us.
However, if we decide to use a special-purpose loan, we must bear in mind that simply defining the goal is not enough. You must also prove the purchase with relevant documents, such as invoices or receipts. Therefore, we will not go in a situation where we take a special-purpose loan and allocate it for completely different purposes than specified in the loan agreement.
That is why this form of loan is cheaper and definitely more profitable, which definitely speaks in favor of special purpose loans.
What can we use the loan for?
Money from an earmarked loan can be virtually any, e.g. setting up an orthodontic appliance or surgery that has long been necessary. With the money from the loan, we can also refurbish an apartment or house, but also repay previous obligations – a consolidation loan. We have a lot of possibilities, however, it should be remembered that no matter what the purpose, but it is important for the bank to know about it when we made the commitment, because what we spent the money on, we must prove to the bank and present it with relevant documents and evidence, because only then the loan will be cheaper.