Any loan borrowing creates obligations called credit commitments. These commitments arising from the creditor (creditor) and the debtor (borrower) between them. These commitments require the lender to grant a loan to the borrower, but the borrower repays the loan, in addition to paying interest payments or commission for the provision of credit services.
Obviously, a credit without a credit obligation is not actually possible , because the credit determines the responsibilities that both parties have to fulfill in order to settle these liabilities. A loan without a commitment is only possible if the borrower takes the loan and does not return it, but then it is no longer a credit obligation, but a debt that provides for bad debtors and the court. However, there are loans with a financial commitment, but no material commitment, ie the borrower has to repay the loan with interest, but the credit obligation does not involve any kind of collateral – not the borrower’s pledge (eg house, apartment, car), nor the guarantee.
Loans with material liabilities or collateral assume that in case of non-repayment of the loan the creditor is entitled to deprive the borrower’s property, making it a property of the borrower, thus compensating for the financial losses related to the loan. Loans without material liabilities have one essential advantage – personal property remains independent, so it is not deducted in case of non-repayment of the loan. Of course, this does not mean that in the case of such a loan, the outstanding loan will be forgotten and no consequences will be left – it provides for other sanctions and consequences. In the event of non-repayment of the loan, the borrower is subject to penalty interest calculated for each day of delay.
The borrower is also included in the debtors’ list and the debt collection process, which is provided by the bank in person or debt collection, begins. Debt collection often ends with court action. Non-repayment of the loan and the consequent consequences of the loan seriously damage the credit history, preventing any kind of loan in the future. Loans without liabilities or collateral are issued by both bank and non-bank lenders. In general, loans that do not require any form of collateral are consumer loans and quick loans. Consumer credit is provided by both Latvian commercial banks and a large part of non-bank lenders, but only non-bank lenders are engaged in the provision of quick loans.