3 things to know about personal loans

The personal loan is a particular type of financing with very specific characteristics, which make it one of the most requested credit products by consumers. For this reason, we asked the experts of the SuperMoney online comparator, a platform on which you can find the best loan by comparing the best offers from the main banks, to summarize the main features that define personal loans in 3 points. Let’s go see them.

1. What are personal loans?

1. What are personal loans?

A personal loan is a form of financing through which you can request a sum in cash and, unlike the targeted loans, you can not declare what you need . In fact, they are not used to finance the purchase of a specific asset, for example a car or photovoltaic panels, but simply to have more liquidity.

Another special feature of personal loans is the risk of default . In fact, banks consider them more risky products than others because you are not required to present special guarantees . If in the loan with assignment of the fifth, a fixed part of your paycheck is intended to repay the loan, in the personal loan this possibility is not there. As there is no possibility to mortgage the house as a form of guarantee. Apart from these particularities, they work like all the other types of loans : they must be repaid through installments, which are increased by interest and accessory costs.

2. Who can apply for a personal loan?

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These specific characteristics that make personal loans a separate product in the credit market also influence the categories of people who can apply for them. In fact, just because you don’t have to present special guarantees when you request it, banks want to be 100% sure of your working situation. This is why, the personal loan is generally addressed only to employees , hired under an open -ended contract .

Some banks may also, under special conditions, agree to provide a personal loan to an employee on a fixed-term contract . Under two conditions:

  • the salary must be such as to guarantee a smooth return;
  • the employment contract must not expire before the loan agreement ends.

If, on the other hand, you are a self-employed person , it is very difficult that you will be accepted a personal loan application. Obviously you should present the Unique models that you have compiled in recent years, so that the bank can check the solidity of your income, but it is also possible that you are asked to find someone willing to act as guarantor . A guarantor is a person who legally undertakes to pay the repayment installments for you, in case you have difficulty in doing so. This is an additional form of collateral with which banks try to hedge against the risk of default.

Finally, personal loans are practically off-limits products for those who in the past have been reported as bad payers , whatever their working situation today. A loan with assignment of the fifth is probably a better choice in that case.

3. Higher interest rates

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By now you should have understood this: when it comes to personal loans, banks above all want to cover their shoulders and feel safe. Precisely for this reason, it is a product that has higher interest rates than other types of loans. In this way, the lender can repay the amount lent in less time, thus avoiding the risks associated with insolvency.

Interest is calculated mainly on the basis of the APR , the Annual Global Effective Rate. This is an index that includes, in addition to the sum to be repaid, also the actual interest, the spread (i.e. the amount of pure bank profit), the accessory costs and the premium of any credit insurance. On average, the TAE G of a personal loan stands at around 11-12% .

When you are in front of the APR of a loan, always remember to compare it with the TEGM (Average Global Effective Rate), an index defined quarterly by the Capital Lender that indicates the limit of bank usury .

Credit intermediary with no upfront costs.

The credit broker with no upfront costs helps in the search for a suitable loan and is used very often, especially for large loans. Credit intermediaries as individuals are often in very good contact with various banks and can thus negotiate slightly better conditions for the borrower, which is particularly worthwhile for loans with a very high amount.

Companies, especially corporations, often rely on a credit intermediary, because his expertise makes him better suited for large loans than if these sums were negotiated independently with the bank. However, the use of a credit broker is always optional, especially since it is no longer the case that only people can act as credit brokers.

A credit calculator on the Internet is also, in a way, a credit broker with no upfront costs, since it unites countless banks in its database and compares them in terms of their terms. In this way, the prospective borrower can quickly and securely find out which bank offers the cheapest loans for the desired term and loan amount.

Pay attention to reputable credit intermediaries

Pay attention to reputable credit intermediaries

Reputable credit intermediaries are always characterized by the fact that no preliminary costs are due for the applicant or borrower. In credit intermediaries, there is either no cost at all from the borrower for his service, such as a loan calculator, or a fixed or percentage share of the total loan amount. The credit calculators on the Internet, at least reputable comparators, are usually always neutral, non-binding and, above all, free of charge for the borrower. If a conclusion is reached via the loan calculator, this is financed by a commission from the respective bank.

Since this is usually the same amount, the results are also to be regarded as absolutely neutral and independent. The credit intermediary as a person, on the other hand, has to finance himself and usually charges the borrower an invoice amount – but only if the credit mediation has actually been successful.

Since the use of a credit intermediary is optional, it is worthwhile for most borrowers to use a free credit calculator. Even with a high five-figure sum, these computers can still be used without any problems to compare the market conditions of the individual providers and thus make a lucrative and cost-saving decision.

Credit intermediaries with no upfront costs that also pay off

Credit intermediaries with no upfront costs that also pay off

The credit market has gained a lot of transparency through the Internet, but it is still somewhat opaque, especially for lay people. A credit broker with no upfront costs can therefore help to calculate the individual costs of the providers exactly and highlight possible differences in terms and conditions and repayment methods.

Without this help, consumers would often have to spend hours researching potential banks and their conditions, calculating them independently, and most likely still leaving out a large number of banks. As a result, credit intermediaries with no upfront costs are useful, but only if they actually do not charge upfront costs. Then the borrower can be sure that they have found serious help.

Credit to compensate for overdraft facility

If you need a little bit of money quickly, it is always easy to exhaust the overdraft facility provided in your own checking account. Most of the time, banks provide customers with an overdraft facility in the amount of a monthly salary, quickly and without bureaucracy. But exhausting the overdraft facility is not always a good thing.

Credit to compensate for overdraft facility

Credit to compensate for overdraft facility

The overdraft facility is actually only intended to compensate for a short-term shortage of money. The overdraft facility that is provided by most banks is far too expensive for long borrowing in the amount of interest to be paid. Therefore, it is only worth taking out a credit line for a maximum of three months. If you keep your account overdrawn, you can quickly make money.

Therefore, if you know that the overdrawn money will take longer, you should take out a loan to compensate for the overdraft facility. In such a case, an installment loan is cheaper in terms of the amount of interest to be paid and the resulting installment payments will get you out of debt after a while. This is more difficult if you have availed of an overdraft facility. Because usually you can not pay it back after a while and get stuck in the debt trap.

Where should you take out the loan?

Where should you take out the loan?

The loan to compensate for the overdraft facility can be taken out at any bank or credit institution. Here you should look for the cheapest provider. It is not absolutely necessary for the installment loan to be taken out at the same bank where the current account with the overdraft facility exists.

Before paying the loan amount, which in such a case is usually around USD 2,000 to 4,000.00, the banks and credit institutions require proof of salary and also ask credit checker if there are any other loans, except for the overdraft facility for the Borrowers are reported. Once you have received the loan to settle the overdraft facility, you pay the entire loan amount into your own current account so that the overdraft facility is balanced and the interest payments for this are also stopped. Then you should be careful not to exhaust the overdraft facility again for a long time.